Bank of England: Victoria Scholar discusses interest rates
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Bank of England governor Andrew Bailey has been labelled an “unreliable boyfriend” after yesterday’s shock decision to hold base rates at today’s record low 0.1 percent. That insult was initially directed at former Bank governor Mark Carney, who also kept changing his mind on interest rates.
Pensioner who dreamed of better returns from cash and annuities have seen their hopes dashed again.
It is a familiar story.
When the Bank of England slashed base rates almost to 0.25 percent after the financial crisis in March 2009, it promised this would only be a temporary measure.
More than 12 years later, base rate is even lower and savers are getting next to nothing. This is a poor reward for decades of doing the right thing and putting money aside for the future.
Record low borrowing costs have also pumped up the property market to record highs, threatening a crash when rates finally rise.
If they ever do.
Laith Khalaf, head of investment analysis at AJ Bell, said markets and savers were “whipped up” for a base rate hike, with Bailey hinting it was going to happen. Yet seven out of nine BoE monetary policy committee members voted against, including Bailey himself.
“Like his predecessor, Mark Carney, Bailey has successfully demonstrated that being an unreliable boyfriend is just part of the job description,” Khalaf said.
While the big high street banks were quick to hike mortgage costs in anticipation of higher interest rates, they did not increase savings rates.
Most still pay just 0.01 percent but you can get a better return by shopping around.
Right now, the the two best buy cash Isas, offered by Cynergy Bank and Paragon, pay 0.65 percent with instant access.
You can get a higher return by locking your money away for a fixed period. For example, Paragon’s fixed-rate cash Isa pays 0.91 percent fixed for one year or 1.11 percent for two years.
Those willing to lock their money away in a cash Isa for five years can get 1.55 percent from Close Brothers or United Trust Bank.
JN Bank offers a fixed-rate bond paying two percent fixed for five years, but that is outside of the tax-free Isa wrapper.
Andrew Hagger, personal finance expert at MoneyComms, said many will be reluctant to lock in. “These fixed rates may quickly look disappointing if the Bank of England ever does hike interest rates.”
Annuity rates have picked up in recent weeks, as providers anticipated a base rate hike.
They hit a two-year high in the run up to the BoE meeting, which would give a 65-year-old with a £100,000 pension pot £5,099 a year. This is up from £5,000 in October 2019.
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Now annuity rates may slip back again and Helen Morrissey, senior pension and retirement analyst at Hargreaves Lansdown said: “Shop around for a good deal and keep your options open while the Bank of England plots its next move.”
Victoria Scholar, head of investment at Interactive Investor, said the Bank feared higher borrowing costs could derail the economic recovery.
It took a surprisingly “dovish” view but Scholar added: “The Bank may hike interest rates at its next meeting on 16 December.”
After more than a decade of unreliable behaviour, pensioners and savers are likely to be sceptical.
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