Further interest rate cut would be bad news says BSA
A Bank of England decision to cut interest rates again this week would be bad news for almost everyone connected to the savings and mortgage markets, according to the Building Societies Association (BSA).
· Bad news for savers – as the income they earn from their savings takes another savage hit
· Bad news for borrowers – as lenders are forced to further cut back on lending, as savings inflows decline
· Bad news for the institutions that bring savers and borrowers together – that is the building societies and banks – as declining profit margins resulting from ultra-low interest rates restrict even further their ability to lend.
Commenting in advance of the MPC decision this week, Adrian Coles, Director-General of the BSA said –
“If the Bank of England wishes to make a contribution to a recovery in the housing and mortgage markets, it should not cut interest rates this month. We need to encourage an increase in the flow of funds into the mortgage market, not take steps that would further restrict that flow.
“The Bank should also bear in mind the severe difficulties suffered by many pensioners who now find that a lifetime of saving has not delivered the standard of living they had every right to expect until a few months ago.
“Finally the MPC should heed the point recorded in its own minutes covering its February decision – that “there was a great deal of uncertainty about what would happen to banks’ and building societies’ ability and willingness to lend at low levels of interest rates.”
Mr Coles concluded “the Bank needs to fully assess the impact of the dramatic decisions on interest rates made so far before cutting Base Rate further. If the Bank feels further action is now necessary, quantitative easing would be much preferable to a further rate reduction, as it would increase the flow of funds in the economy, and make it easier for deposit-takers to attract funds.”
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Notes to Editors
The Building Societies Association (BSA) represents all 55 building societies in the United Kingdom. Building societies have total assets of £395 billion and, together with their subsidiaries, hold residential mortgages of £250 billion, more than 20% of the total outstanding in the UK. Societies hold over £235 billion of retail deposits, accounting for more than 20% of all such deposits in the UK. Building societies also account for about 37% of all cash ISA balances. Building societies employ over 51,500 full and part-time staff and operate through more than 2,000 branches.
Photographs of Adrian Coles are available from the BSA press office, or from the Association’s website at www.bsa.org.uk or Headlinemoney www.headlinemoney.co.uk
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