Low interest rates have cost each UK household £6000

Hargreaves LansdownAn total of £160 billion has been collectively denied to savers as a result of historically low interest rates, according to latest estimates.

Financial services firm Hargreaves Lansdown said the loss equates to £6,000 per household in the UK.

It calculated that lower interest payments have cost cash savers £160bn in total, compared with the returns they were receiving before the financial crisis.

The Bank of England Monetary Policy Committee today voted to keep rates at a record low of 0.5 per cent.

The Committee has voted unanimously 9-0 to keep the base as it is, marking seven years of unchanged rates.

Analysts found that in September 2008, before interest rates fell, the average rate on an instant access account stood at 3 per cent, but it’s now fallen to a measly 0.8 per cent.

They said that while the dramatic fall in interest rates that has led to such a stark fall in returns, it disparity is even more dramatic when inflation is taken into account.

Hargreaves’ calculations showed that, if £1,000 had been invested in a typical instant access savings account in March 2009 (when base rate was cut), it would now be worth £1,060 at face value – but after inflation has been factored in, the spending power drops to just £905.

The firm said the interest rate that people can expect to get on an instant access deposit account, for example, has fallen from three per cent in September 2008 to just 0.8 per cent now.

Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “Cash has been trashed. Markets are now pricing in a higher chance of an interest rate cut than a rise this year. UK monetary policy is being held in check by two opposing forces; low inflation on the one hand, and a growing economy on the other.”

Markets are increasingly pessimistic of a rate rise this year, and are now pricing in a higher probability of a rate cut this year than a rise.

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