The outlook for UK savers appears increasingly grim as the Bank of England announced a cut to the base rate, the first in several months.
This is set to have a ripple effect on consumers, potentially enhancing affordability for home buyers, but for those with savings accounts, the news is having a very different effect.
Paul Noble, CEO of Chetwood Bank, cautioned: “Savers should take this as a reminder that the window for securing the best rates in the savings market may be closing.”
Furthermore, Tony Redondo, Founder at Cosmos Currency Exchange, acknowledged that the cut, alongside upcoming tax changes and rising costs in April, could “pose challenges for savers”.
With growing inflation and what many experts view as potentially the first of numerous rate reductions in 2023, savers face an uphill battle.
Inflation can diminish your savings if it outpaces the interest you earn on it, leading to a reduction in purchasing power over time and essentially costing you money, even if the figure in your account remains the same.
With inflation projections staying above 2% for most of 2025, and the average instant access savings account offering 2.59%, according to Finder, the margin for savers is worryingly slight.
Paul emphasised that savers can still take action against the current financial climate: “Taking a proactive approach now can help ensure that savings continue to deliver strong returns before any further cuts take effect. With further reductions likely later this year, now’s the time for savers to review their options and make sure they’re set on the best possible path.”
Meanwhile, following a 0.25% decrease in the base rate today, Tony noted that a couple of members from the Monetary Policy Committee had actually proposed a steeper cut of 0.5%, potentially hinting at future decisions due to economic concerns.
This base rate largely influences banks’ interest rates for saving and borrowing products, meaning savers usually feel the brunt first, with mortgage rates often being slower to adjust.
Variable-rate accounts are susceptible to shifts in the base rate, in contrast to fixed offerings for savings or mortgages, which come with their own caveats, such as restricted access to funds for a certain period. The current base rate stands at 4.5%, marking its lowest point since June 2023.
