MSE News: Inflation rise means all savings are 'losing' accounts 14 December 2010 at 2:26PM in Savings & investments 66 replies 6.8K views

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"No standard savings account can beat the current rate of inflation, meaning virtually every savings vehicle is a 'losing' account if the cost of living continues to rise at the same rate ..."

Read the full story:
Inflation rise means all savings are 'losing' accounts

rdtrdt

The Bank of England's Monetary Policy Committee (MPC) has now been consistently wrong in its inflation forecasting for an extended period of time. There's two possibilities:-

Either
1. The MPC is deliberately ignoring its inflation targeting remit;
Or
2. The MPC is incompetent.

It keeps referring to "temporary effects", but rather than being temporary these effects are persisting and worsening. Not long now until we see wage demands reflecting this persistent rise in inflation, and when these demands are granted, even higher inflation will become embedded.

I wonder how long the MPC can keep this charade going?

SallySunshine

Hopefully the base rate will rise in the New Year but not enough to 'save' our savings

however this has made my day

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8200211/Ireland-blocks-Allied-Irish-Banks-from-paying-40m-bonuses.html

Why can't this happen with some of our banks in the U.K.

And if anyone states that old chestnut about we'll lose these wonderful people to other countries if we don't pay them their 'worth', they want to be thankful they are not being sacked or sued.

SG_Guy

Personally, I am not too bothered by inflation outpacing savings accounts *provided* this is not over a sustained period of time (e.g. 2 years or more).

The reality is, and prudence demands, we all need a cash cushion that is readily accessible, so putting cash into equity-income funds or other riskier investments is not a wise option. Money market funds might do slightly better than ordinary cash deposits but after fund expenses (albeit relatively low), am not quite sure it's worth sacrificing the capital guarantee and accessibility of savings accounts.

TMoose

SallySunshine wrote: »

Why can't this happen with some of our banks in the U.K.

And if anyone states that old chestnut about we'll lose these wonderful people to other countries if we don't pay them their 'worth', they want to be thankful they are not being sacked or sued.

Technically it can happen to RBS and Lloyds Group, since they are majority owned by the govt who have the same rights as any majority shareholder to replace the board if they disagree with the direction the company is taking.

For the remainder of UK Banks, or indeed UK Branches of Global banks, this would be extremely difficult to achieve as private companies have the option to do whatever they want with their money - subject to shareholder approval - and any attempts to legislate otherwise would probably be classed as restraint of trade, which has it's own economic implications.

Still, we could just do away with it all and live in a communist society. That always ends well.

Moose

Linton

rdtrdt wrote: »

The Bank of England's Monetary Policy Committee (MPC) has now been consistently wrong in its inflation forecasting for an extended period of time. There's two possibilities:-

Either
1. The MPC is deliberately ignoring its inflation targeting remit;
Or
2. The MPC is incompetent.

It keeps referring to "temporary effects", but rather than being temporary these effects are persisting and worsening. Not long now until we see wage demands reflecting this persistent rise in inflation, and when these demands are granted, even higher inflation will become embedded.

I wonder how long the MPC can keep this charade going?

The MPC's control of interest rates can only handle internally generated inflation - rising wages causing rising prices causing rising wages etc.

The bulk of the inflation that is happening now is due to the increase in VAT at the start of the year and external factors such as rising commodity prices. And we have a VAT increase at the start of next year. Nothing the MPC has control over can prevent these increases in costs affecting the standard of living of the Great British Public.

Any pressure from rising wages in the short term is likely to be very constrained by the current unemployment level and the future shake-out in the public sector.

There is some pressure to raise interest rates, but that is not to counteract the current inflation, but rather to prepare for the longer term future when the economy recovers and the current constraints on wages rising become less effective.

ed123_2

.....surely gideon is not leaning on king to keep rate low because of our £4.8 trillion debt?.....I don't know and don't call me shirley...................<;-/

dunstonh

I saw figures published a few months back that showed the inflation figures without the VAT increase being under 2%. It cannot be underestimated the impact that the VAT increase had and how much the next one will have (as the last one drops off, the next one comes on).

JasX

Well my stocks and shares ISA has delivered a solid 20-30% each year since early 2008.... I'm doing ok

rdtrdt

Linton wrote: »

The bulk of the inflation that is happening now is due to the increase in VAT at the start of the year and external factors such as rising commodity prices. And we have a VAT increase at the start of next year. Nothing the MPC has control over can prevent these increases in costs affecting the standard of living of the Great British Public.

Which of course was fully known in advance, yet the MPC failed to incorporate this into its forecasts, which have been hopelessly adrift from reality.

Its forecasting has consistently proven to be wrong. And wrong in the same direction, i.e. to underestimate inflation.

To be wrong so consistently (partly for something such as the VAT increase, which was a known quantity) indicates either deliberate policy or incompetence.

rdtrdt

dunstonh wrote: »

I saw figures published a few months back that showed the inflation figures without the VAT increase being under 2%. It cannot be underestimated the impact that the VAT increase had and how much the next one will have (as the last one drops off, the next one comes on).

As this increase was a known increase, the MPC should have included this in its model and its forecasts taken the VAT rise into account. But they didn't.