Business

Interest rates: Savers' group calls for Bank rate rise

Piggy bank
Image caption Savers have suffered from low rates, but mortgage borrowers have benefited

The value of UK savings has been eroded by £50bn in the past year because of inflation and low interest rates, a campaign group has said.

The Save Our Savers group wrote to each member of the Bank of England's rate-setting committee urging them to raise the Bank rate to help pensioners and encourage saving.

But the Monetary Policy Committee kept the rate on hold at 0.5%.

Mortgage borrowers have benefited from rates remaining at the record low.

'Permanent' impact

In a plea to all nine members of the MPC ahead of the decision, Save Our Savers said that "a country without savings is a country without a future".

It warned that those on fixed incomes, such as pensioners, were suffering terribly from the combination of extremely low interest rates and above target inflation.

"For many this is not a temporary setback. Its effect will permanently reduce the value of their future income," the letter said.

However, the MPC later announced that it was maintaining the Bank rate at 0.5%. It has now been at this record low for more than two years.

This has hit savers, but it has made home loans cheaper, ensuring some can meet their mortgage payments.

Financial information service Moneyfacts reported a week ago that interest rates on new mortgage deals had fallen to their lowest level, on average, in 23 years.

Halifax - a lender now part of Lloyds Banking Group - said typical mortgage payments for a new borrower had fallen from a peak of 48% of average disposable earnings in mid-2007 to 28% in the second quarter of 2011.

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