Worry for savers as Bank hints at cut in interest rate

INTEREST rates could plunge even further, subjecting savers to more misery, the governor of the Bank of England hinted yesterday.

Mark CarneyGETTY

Bank governor Mark Carney warned about low interest rates

Launching the Bank’s Quarterly Inflation Report, Mark Carney warned that inflation could temporarily turn negative in the spring months.

Due to a fall in oil prices and other deflationary pressures, this could mean that the cost of goods would reduce.

He warned that if the trend towards deflation, where inflation rates pass below zero per cent, was to continue the Bank may have to cut the base interest rate – which currently stands at an historic low of 0.5 per cent – even further.

This would be further bad news for savers, who have been living with low interest rates tied to the base rate, since the recession in 2009.

He said the Bank’s monetary policy committee, which sets interest rates, was “vigilant to the risks of disappointing global growth or any signs that low inflation begins to affect inflation expectations and wage growth, and therefore becomes self-reinforcing”.

He added: “Were these downside risks to materialise, the committee could adjust the pace and degree of bank rate increases, expand the asset purchase facility, or cut bank rate further towards zero.”

Mr Carney offered a glimmer of hope to millions of savers struggling in the current financial climate. He predicted that inflation could pick up towards at the end of this year, once energy and food prices stabilise.

This could then lead to a possible rise in interest rates. The governor said in a letter to Chancellor George Osborne explaining why inflation had fallen well below of the Bank’s two per cent target: “It’s pretty clear in terms of our central expectation that most likely next move in monetary policy is an increase in interest rates.” 

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