The Bank of England has left interest rates at the record low of 0.5% again – which means the rate has not moved for the four years since March 2009.
The bank’s monetary policy committee also agreed to stick on quantitative easing – leaving the balance at £375 billion and with little chance of increasing while the Funding for Lending program is in full swing.
In a statement reviewing the past year’s economic performance for Britain, the bank highlights to flat economic growth over the past 12 months and a continuing sluggish performance over the coming year.
However, the bank does expect a slow sustained recovery of the British economy and more credit to come to the market, although many factors that influence credit in the UK are affected by external factors, like the continuing eurozone economic malaise.
The committee also points at stubborn inflation that refuses to fall below 2%, mainly because of the rising costs of fuel and food.
Savers are big losers
“Attempting to bring inflation back to target sooner by removing the current policy stimulus more quickly than currently anticipated by financial markets would risk derailing the recovery and undershooting the inflation target in the medium term,” said a spokesman.
Barry Naisbitt, Chief Economist at Santander UK, said: “The decision to hold both bank rate and quantitative easing once again was widely expected. There remains uncertainty about the underlying pace of economic activity, with the strong GDP growth in the third quarter of last year being partly unwound by the fall in the final quarter.”
One specialist savings and investment firm analysed the difference between keeping money in an account paying interest at the base rate of 0.5% a year compared to one paying 2.5%. For those who had built up a savings pot of £100,000 before interest rates fell, the potential loss of gross interest is £8,366.24.
Samantha Porter, of The Wesleyan, said: “Making sure savings are working as hard as they can is often at the bottom of people’s priority list.
“Our calculations show that failing to shop around for the best deal can have a significant impact on savings. With many people keeping their money in accounts paying just 0.5% a year or less, savers could have missed out on considerable sums in lost interest over the past four years.
“In reality, with inflation still above the target rate of 2%, savers need to work even harder just to stop the real value of their money from being eroded.”