The future of interest rates, inflation and the need for advice on savings

Uncertainty appears to be the watchword among policymakers at the Bank of England (BoE). Recent events have provided few hints on the possible direction of UK interest rates and the timing of any potential movements, and the Monetary Policy Committee (MPC) remains divided on future strategy. The MPC voted to keep rates on hold at their record low of 0.5% again in March, meaning they have now remained unchanged for 2 years. However, minutes of both the February and March decisions show that three members are looking for an increase in rates whilst another continues to seek an expansion to the currently dormant quantitative easing programme.

The Consumer Price Index remains stubbornly high, running well ahead of the BoE’s rolling government-set target of 2%. However, the UK’s economic position is still very fragile and therefore, despite the base rate still being at its lowest level in more than 300 years, policymakers are reluctant to increase it too early for fear of derailing what positive growth prospects there are.

For the moment at least, then, our environment of exceptionally low interest rates remains. Such a strategy is good news for borrowers. However, it prolongs the headache for savers, particularly those who are looking for a low-risk home for their money. Those focusing on deposit accounts are already getting scant little reward in terms of income on their savings, and are probably seeing inflation eat away at its real value. It’s important therefore that you utilise those tax breaks available to you, and seek advice on possible alternatives. For the more cautious investor, there are alternatives such as products offering some element of protection or guaranteed return.