Falling inflation opens door for more QE but savers’ nest eggs continue to loose value

| September 19, 2012 | 0 Comments

By
Daily Mail Reporters

02:30 EST, 19 September 2012


|

09:06 EST, 19 September 2012

Bank of England
rate-setters voted unanimously to keep quantitative easing
at its current level, it was revealed today, despite lower inflation that has led economists to predict a new round of money printing.

The Bank of England was yesterday given leeway to unleash another round of quantitative easing to bolster the ailing economy after official figures showed inflation eased back to 2.5 per cent in August after a shock rise from 2.4 per cent in June to 2.6 per cent in July.

Analysts said lower inflation paves the way for the Bank to pump yet
more money into the economy having already sanctioned the printing of
£375billion since March 2009. Many economists believe the economy is so weak the Bank will feel
compelled to act again in November when the current round of QE runs
out.

QE boost? The Bank of England could pump more cash to bolster the economy after official figures showed inflation fell to 2.5 per cent in August

QE boost? The Bank of England could pump more cash to bolster the economy after official figures showed inflation fell to 2.5 per cent in August

WHAT NEXT FOR RATES?

A higher UK bank rate remains a long way off, according to money markets. But the forecast for the first increase has moved forward after the recent ‘QE3′ announcement in the US.

The flow of newly printed money will increase global price pressure, and possibly the eventual need for rate rises, the market believes.

Interest rate futures, which forecast a cut from 0.50 per cent to 0.25 per cent early next year, now predict a rise to 0.75 per cent for late 2016; they were previously earmarking late 2017.

Read more: What next for rates?

Annalisa Piazza, an economist at
broker Newedge Strategy, said: ‘With inflation expected to run at around
2 per cent in early 2013, we still see chances of additional QE at the
November meeting.’

An extension to the asset purchase
program would pile more pain on to savers.

The policy helps to keep
interest rates lower, keep returns on savings pots at low levels, while
having a generally inflationary effect that erodes the value of nest
eggs.

A report yesterday revealed that average
savers have lost hundreds of pounds in value over the past five years
because of rock bottom interest rates and the rising cost of living.

The damning analysis looked at the
impact of this toxic combination on a sum of £10,000.
Since 2007, the nest egg’s ‘spending power’ has dropped to just £9,248, a
loss of £752, the study by finance information firm Moneyfacts found.

The small fall in inflation is
overshadowed by the fact that the CPI has been above its two per cent
target, set by the Government, for nearly three years.

Throughout this period, interest rates paid on savings have been desperately low, with many accounts paying close to zero.

Feeling the squeeze: Families are faced with high petrol prices and low interest rates paid on savings

Feeling the squeeze: Families are faced with high petrol prices and low interest rates paid on savings

Sylvia
Waycot, a financial expert from Moneyfacts, said: ‘Once again, we have
the ridiculous situation where we have more savings accounts that don’t
beat inflation than those that do.’

 

TABLES: BEST CASH ISAs


Woman with a piggy bank

Of the 1,017 savings accounts on the market, just 198 pay an interest
rate high enough to beat the impact of tax and inflation for a basic
rate taxpayer.

To make matters worse, a report from Saga, the over-50s specialist, said inflation is typically higher for older people.
This is because older consumers tend to spend more on things, such as electricity and food, where prices are rising faster.

Over
the past five years, prices have jumped by 16.8 per cent for the
population, but by 22.6 per cent for those aged 75 and over.

The fall in inflation came as furniture and clothing
prices as well as gas and electricity bills increased by less than a
year ago – raising hopes that inflation will finally fall to the 2 per
cent target for the first time since late 2009.

Rising petrol and food
prices threaten to push inflation higher in the coming months –
prolonging the squeeze on family finances as wage growth remains muted –
but economists believed there would be scope for a further stimulus.

The damning analysis looked at the impact of this toxic combination on a sum of £10,000.
Since 2007, the nest egg’s ‘spending power’ has dropped to just £9,248, a loss of £752, the study by finance information firm Moneyfacts found.

The comments below have not been moderated.

Wow this morning it’s going up now the real headline which everyone has known for a while, THEY AREN’T PRINTING ANY MORE, stop fretting you lot.

mark78
,

Sunny Suffolk,
19/9/2012 15:30

Maybe someone at the bank has read what the President of the Bunesbank said this week. He laughed at the European Central Bank proposal to buy the debt of Spain, Portugal, Greece and Italy etc with eurobonds. The eurobonds have no real currency behind them, they are made of valueless Monopoly money and will naturally created huge inflation. The inflation will in turn devalue the euro. and ruin all eurozone economies. NO MORE VALUELESS POUNDS THANK YOU.

john
,

kouvola finland,
19/9/2012 15:29

The problem isn’t that there isn’t enough Cash in the System , quite the opposite, there is NO NEED FOR QUANTITATIVE EASING. The Money Lenders, the PUPPET MASTERS need to decide that they have inflicted enough damage on the Population. For Centuries they have claimed to be Victims, given the Financial Chaos they have created, the Facts Speak for them selves.

KP
,

Guisborough, United Kingdom,
19/9/2012 14:48

This brutal theft from savers will carry on and on as long as Bank of England represents the interest of banks rather than people. BoE governor and MPC members must be electable by voters PERIOD

Mike
,

Scotland, United Kingdom,
19/9/2012 14:30

Can someone please tell me where all the money used in quantitative easing actually goes. And who will have to pay it back?

Jim
,

London,
19/9/2012 14:20

THD Halesworth, yes deflation would be a problem, but where exactly do you see the signs of it? “Ideal” inflation was defined as between 1 and 2% and we are seemingly permanently locked in to over this figure. Over target inflation is deliberate. It is a way of trying to inflate away the banks and the governments debts. – Littlebodge , Brighton ~~~~~~~ Exactly. And if pensioners and responsible people who are saving for their retirement (which is what the government is telling us to do) have to be sacrificed in the process then so be it. The millionaire David Cameron and his rich cronies in the cabinet couldn’t give a toss because they will be more than comfortable in their retirement whatever happens.

Rob
,

Liverpool,
19/9/2012 14:08

Ddflation would be a good thing. We have had if for years in many consumer goods with the computer probably leading the way in terms of increased bang for the buck. People still manage to buy them. Some people would of course delay the purchase of items as they do now but that could only be good for our trade deficit. They wouldn’t delay for long because in the long run we are all dead. ‘Must have it now’ is hard wired. House price deflation? Well they should be around half what they are now.

Cloud 9
,

Persepolis, Bonaire, Sint Eustatius and Saba,
19/9/2012 13:57

It really does confound me that this destructive cycle is allowed to continue; until there is a change in the systemic structure of UK politics, NOTHING will change. Lab, Con, Lab, Lab, Con, Con, Con, Lab, Con, Lab, Lab, Lab, Con… ad infinitum. Nothing ever changes. Hence why I am attempting to use a protest vote in the next election, but I don’t expect much to happen as there is always going to be a hardcore elite in the main 3s camp, coupled with new voters excited about the prospect of voicing their political backings for the 1st/2nd time (which *usually* comes from parents’ allegiances), which is nowhere near experienced enough to have a holistic view of the whole iniquitous system. The only other thing I can think of is mass revolution, but we’re all too damn apathetic for that to materialize, so my only other option is to attempt to drop out the system as much as possible; then I’m vilified for not contributing. Catch 22.

Space Observer
,

Stoke-on-Trent, United Kingdom,
19/9/2012 13:35

Only yesterday, the DM was predicting a large increase in inflation because of fuel and food prices. Now it seems it is predicting the exact opposite. Anything to wind up us gullible readers!

Ted
,

Coventry, United Kingdom,
19/9/2012 12:53

Unbelievable.

EarnAReturn
,

Suffolk, United Kingdom,
19/9/2012 12:37

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