Sorry, savers, base rate needs to fall

We’re in recession or, at best, the economy is stagnant. Even the much-hyped Olympics did little more than make us feel a little bit better about it.

That’s why the Bank of England needs to do what the International Monetary Fund suggested earlier this year and cut the base rate – to 0% if necessary.

The benefits could be considerable. Borrowing costs for individuals and businesses could fall, encouraging the flow of capital that so many companies need to grow.

Homeowners on tracker mortgages would see an immediate benefit, freeing up some spare cash to get the economy moving - and the UK economy desperately needs a boost.

After all, for all our moaning about the Coalition’s cuts, they haven’t really got going yet.

A much-needed boost is failing to materialise, so it’s time we took steps to make that happen.

The Institute for Fiscal Studies warned that just 6% of cuts to current public service spending were implemented by the end of the last tax year.

That means the majority of the pain is still to come – and that means the economy desperately needs a boost from elsewhere.

Yet the British Retail Consortium found retail sales values were down 0.4% in August, compared to the same month in the previous year. A much-needed boost is failing to materialise, so it’s time we took steps to make that happen.

The current economic situation isn’t ideal for anyone – but it won’t get better for savers or borrowers until the economy picks up.

Of course, a further fall in base rate would be a raw deal for savers. A double whammy of high inflation and low rates means many savers have already seen their nest eggs dwindle in real terms. It’s been more than 40 months now that base rate has remained at 0.5%, and savers are paying the price for that.

But many of the savers are older people who have benefitted from rising house prices because their homes rocketed up in value. It’s those high house prices that have left so many homeowners battling expensive mortgages.

The current economic situation isn’t ideal for anyone – but it won’t get better for savers or borrowers until the economy picks up. A cut in base rate could help that happen, so I’m sorry, savers, base rate should fall. 

• Felicity Hannah is a personal finance journalist living in the north of England.

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