As expected the Bank of England has left interest rates at 0.5%. It also announced that there would be no immediate increase to the existing £375 billion program of Quantitative Easing.
The Bank’s Monetary Policy Committee (MPC) has now kept interest rates at 0.5% since March 2009 and with mixed economic news any change in November was always unlikely.
Despite this the UK’s savers will have been hoping, albeit in vain, for an increase to interest rates to help offset the dramatic cuts in savings interest rates over the past few months, following the introduction of the Funding for Lending Scheme (FLS).
The FLS was introduced to encourage banks and building societies to lend more freely to businesses and individuals. Whilst it has provided lenders with an alternative source of wholesale finance, at lower rates than those available on the open market, it has also led many banks and building societies to reduce the rates they are paying to savers.
Although the rate of inflation has fallen over recent months many people predict that it will start to rise as we move into 2013, which could make it even harder for savers to find an inflation beating return.
Today’s news will therefore come as a disappointment to savers who would have been hoping for an increase to interest rates, which would have meant better rates on the best buy savings accounts.
Relief for Annuity buyers
People planning on buying an Annuity over the next few weeks will however, unlike savers, have breathed a sigh of relief that no further Quantitative Easing (QE) measures have been announced.
QE, the process of injecting money into the economy to try and boost growth, has been a controversial policy, with many people believing it is one of the reasons behind the large fall in Annuity rates during 2012. Indeed one recent survey showed that Annuity rates had dropped by 7% over the past four months.
With mixed economic data and despite the UK officially coming out of recession, many experts had predicted that the Bank would extend the existing program of QE to give a further stimulus to the economy. However the Bank seems to be adopting a ‘wait and see’ policy and a further expansion of the QE program cannot be ruled out.
However, for the meantime, would-be retirees can perhaps rest a little easier, although they still need to content with the EU’s gender directive and Solvency II, both of which are likely to reduce Annuity rates still further.
Our team of Independent Financial Advisers in Nottingham are experienced in developing retirement income strategies and helping improve the return on your savings for clients the length and breadth of the UK.