Why aren't interest rates going up?

juniordoc

I can't see base rate getting above 1% for several years yet. There is very little incentive to save, and our consumer bases economy relies on us spending for growth!

melbury

jimjames wrote: »

You've been on this forum a very long time, have you not spotted any of the multitude of posts about high interest accounts? 5% savings loophole? Definitely worth taking a look if you want to earn better rates.

The only things I see for getting a higher rate are having multiple current accounts each moving money into another one, which seems a bit complicated:o

I just want a straightforward fixed rate bond paying a decent amount. Even my cash ISA rate has dropped again to 0.9%.

I know it is all great for people with mortgages, but diabolical for savers.

melbury

YorkshireBoy wrote: »

What was the BOE base rate and CPI when you were enjoying 10%/7.75% AER on your savings?

It was during the 1990's - think base rate at one stage was way over 10%.

kidmugsy

Freecall wrote: »

That question implies that the economics of the two environments are similar, which they are not.

No it doesn't, it simply questions the assumption that any increased UK inflation must have been caused by the Brexit vote, because it followed the Brexit vote.

You might as well say that increased UK inflation has been caused by Leicester City winning the Premier League.

coyrls

kidmugsy wrote: »

No it doesn't, it simply questions the assumption that any increased UK inflation must have been caused by the Brexit vote, because it followed the Brexit vote.

You might as well say that increased UK inflation has been caused by Leicester City winning the Premier League.

I thought it was pretty much accepted that the Brexit vote caused a devaluation of sterling that in turn caused a rise in inflation. I would consider Leicester City winning the premier league as a cause of the rise in inflation if there was a similarly convincing explanation of the mechanism but I have yet to hear one.

badger09

melbury wrote: »

The only things I see for getting a higher rate are having multiple current accounts each moving money into another one, which seems a bit complicated:o

It really isn't that complicated. It takes a bit of effort to set up, but very little ongoing maintenance, much (if not all) of which can be automated.

If you're prepared to do some reading and put some effort in, you'll get lots of help on here:)

melbury wrote: »

I just want a straightforward fixed rate bond paying a decent amount. Even my cash ISA rate has dropped again to 0.9%.

It doesn't exist.

melbury wrote: »

I know it is all great for people with mortgages, but diabolical for savers.

See first answer above;)

Eco_Miser

YorkshireBoy wrote: »

What was the BOE base rate and CPI when you were enjoying 10%/7.75% AER on your savings?

melbury wrote: »

It was during the 1990's - think base rate at one stage was way over 10%.

So while the nominal value of your savings went up by 10%, the real value fell.

Now, while the nominal value can go up by 3% (if you spread it round current accounts and regular savers), their real value is actually rising.

Which is better for savers?

Terry98

masonic wrote: »

The independent consensus for CPI inflation in 2017 is a little under 3%, after which it is predicted to fall. I have no doubt currency movements and Brexit have been factored in to those predictions, although what actually happens to inflation in the future is anyone's guess.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/591911/Forecast_for_the_UK_Economy_Feb_2017.pdf

If CPI inflation was set to rise above 4% for a prolonged period, then chances of a base rate rise would be a lot more likely, but it doesn't seem that's what is predicted.

If they can keep it under 3 per cent they are doing a good job. I could not open your link but everything I see points to inflation well above that in the next year....let's hope I am wrong!

Reaper

Low interest rates are meant to cause inflation but boost the economy, but that model has not been functioning for many years. Both inflation and the economy have remained weak.

However when inflation does finally get a grip the BOE will have to decide whether to risk raising rates. Doing so may tip us back into recession, or even "stagflation" where the economy goes into recession but it still fails to bring down inflation.

My prediction is they will be cautious meaning savings rates are going to remain well below inflation for the forseeable future.

masonic

Terry98 wrote: »

If they can keep it under 3 per cent they are doing a good job. I could not open your link but everything I see points to inflation well above that in the next year....let's hope I am wrong!

Earlier forecasts did predict higher inflation, but these have since been revised down. Since you can't open the link, here are a couple of graphs from the report showing the distribution of the forecasts of various institutions around the average:



Obviously, this all needs to be taken with a pinch of salt, but it does rather suggest there is no need to take action right now against inflation. I would imagine the powers that be are really targeting inflation of 2-3% as slightly higher inflation is beneficial in tackling the deficit.