No rate cut, no more QE

The Bank of England has kept interest rates on hold at 0.5% and is not extending its £200bn asset purchase programme, commonly referred to as quantitative easing (QE).

Economists had widely expected interest rates to remain unchanged this month. There was some speculation that the asset purchase programme would be extended, as economic data suggests the recovery is flagging.

The decision came on the same day that Bank of England figures showed the impact of low interest rates on savers.

Savers have collectively lost £43bn in interest over the past two and a half years due to the historic low interest rates.

Whilst the UK economy grew by 0.2% in the second quarter, growth in the third quarter is expected to be even slower or even negative.

Continued low interest rates pose a real issue for many savers, particularly those who rely on their savings interest to supplement income in retirement.

When combined with stubbornly high price inflation, low interest rates are resulting in many savers seeing the real value of their capital eroded over time.

Savers in this position face a stark choice; exposing their money to investment risk in the hope of gaining real returns or accepting an erosion in real value for the foreseeable future.

Depending on how the economic recovery pans out over the next six months, we would not be surprised to see an extension to the Bank of England asset purchase programme or possibly even a further interest rate cut to 0.25% before the end of the year.

Photo credit:Flickr/EZTD