Interest rates were held at a record low of 0.5 per cent for the 36th month in a row yesterday amid evidence that the benefits to borrowers are slipping away.
The Bank of England’s Monetary Policy Committee (MPC) maintained the base rate as some experts predicted it could be held at the same rock-bottom level for another three years, causing great pain for savers.
But lenders have recently started to put up their mortgage costs, including Halifax and RBS-NatWest, amid the weak economy and the fallout from the eurozone crisis.
The Bank also held its quantitative easing (QE) programme – otherwise known as money-printing – at £325 billion after last month’s £50 billion cash injection.
Economists say it would take a seismic change in the economic landscape to bring higher interest rates back to the table.
The combination of low rates and high levels of QE have been particularly painful for savers and those approaching retirement, although most homeowners have benefited, given the bank’s base rate stood at 5 per cent in October 2008.
The typical savings rate has plummeted from 6.52 per cent in 2008 to 2.78 per cent, since the bank starting cutting borrowing costs.
It is thought that more than £100 billion is sitting in accounts which pay no interest, according to Bank figures, compared with around £15 billion-£20 billion in the years before the financial crisis.
Meanwhile, around £90 billion has been knocked off the value of final salary pension schemes owing to recent QE measures, according to the National Association of Pension Funds (NAPF).
For those who reached retirement age in that period, annuity rates fell from 6.93 per cent to 5.86 per cent. This is because annuities are linked to yields on Government bonds which have been reduced by QE.
The Bank’s Governor, Sir Mervyn King, has expressed his sympathy for savers but has said the stimulus measures were needed to help the economy.