David Cutter, group chief executive of Skipton Building Society, has been featured in the Daily Telegraph, explaining why he believes the Bank of England’s policies are now causing more harm than good for savers.
In the article, David says:
- The Bank of England has taken unprecedented actions on monetary policy, including setting the Base Rate at 0.25% and allowing banks and building societies to access low cost funding via the Funding for Lending Scheme (FLS) and Term Funding Scheme (TFS).
- Being able to borrow from the Bank of England at low rates means banks and building societies are less reliant on savers’ deposits for funding loans and mortgages. This has led to them offering lower interest rates on saving accounts.
- The Bank of England expects low rates to lead to higher spending. But evidence suggests that rather than spending more, many people are now saving instead, to protect the value of their capital.
- He calls on the Bank of England to rethink its policies and act to protect savers.
“Upon cutting the Base Rate, as well as making cheap funding available to banks, the MPC’s theory is that we will all spend more.
“But this year’s evidence suggests that the very opposite may be happening. When rates are ultra-low, many savers do not spend: they reduce consumption to protect whatever capital they have left for their life ahead.
“Ultra-low interest rates have distorted the housing market while penalising savers. It disincentivises savers who will spend even less in order to protect their capital, while driving down mortgage rates and keeping house prices out of reach for many.
“Savers’ balances are currently not in demand because banks can instead borrow so cheaply from the Bank of England. This is why savings rates continue to fall.
“It is essential that the Monetary Policy Committee develops a long-term strategy to better reward savers, the forgotten victims of the financial crisis, rather than permanently distorting the UK mortgage market.”
The full article can be read on the Daily Telegraph.
You can find out more about the base rate reduction on our Bank of England Base Rate change page.