Cash-strapped savers have been hit by the news that the Bank of England’s base rate may be held at 0.5 per cent until 2015.
The Bank yesterday announced it was yet again freezing the base rate at the lowest level in its 318-year history, coinciding with the third anniversary of the rate being cut to 0.5 per cent.
The move raises the prospect of the base rate remaining at this historic low for another three years, which according to Capital Economics would be a devastating blow for UK savers who have been offered very little in interest on their lump sums since March 2009.
Vicky Redwood, chief UK economist at the economic consultancy, said: “We think that they could stay at this level [0.5 per cent] for another three years.”
She also suggested that official interest rates “could fall even further”, possibly to 0.25 per cent.
It is estimated that savers have lost out on £76 billion over the past three years as a result of record low interest rates, compared with the higher rates paid in the previous three (2006-2009).
In the first week of October 2008, the Bank rate was at 5 per cent. Putting cash into a typical Individual Savings Account (ISA) at that point would have awarded an interest rate of 4.49 per cent, while a typical instant access savings account would have offered interest of 2.46 per cent.
Fast forward to march 2012 and those same savings products offer just 0.96 per cent and 0.15 per cent interest respectively, according to official Bank of England figures.
But while savers have been hit, the low rates have been a bonus for borrowers, especially UK homeowners with variable or tracker-rate mortgages who have seen a sharp fall in loan repayments.
