7 August 2013
- Three more years of misery for savers and pensioners
- Rates remaining at emergency levels whilst there is no emergency
- Relying on borrowing and house price inflation to drive growth is how we got into the crisis
Anyone approaching retirement and potentially buying an annuity, anyone running a pension scheme and anyone saving for their future will have been disappointed by today’s masterly statement from Mark Carney, potentially promising three more years of emergency, ultra-low, interest rates.
The economy is recovering, there is no emergency any longer and inflation is a potential threat. Yet the Bank of England sees no danger in keeping rates so low.
The worry is that tying interest rates to unemployment levels rather than inflation or the real economy could just be repeating the mistakes that caused the crisis in the first place.
This policy relies on continued borrowing at unrealistic rates and ongoing rises in house prices to boost growth. That is similar to the pre-crisis environment.
With an ageing population we need to encourage saving so that people have money for their future, but this policy environment undermines incentives to save. It may suit borrowers short-term but is has dangerous longer term consequences.
I do hope as the economy continues to grow the Bank will start to operate with more foresight than today’s statement demonstrates.