The Bank has warned that it could still cut rates later in the year if the economy does not pick up
The Bank of England has decided to keep interest rates on hold at 0.75% but cut its growth forecasts for the economy.
In Mark Carney’s last meeting as governor, members of the Bank’s Monetary Policy Committee voted 7-2 to keep interest rates at their current level.
The Bank says that as Britain’s economy has picked up since the election and that global growth had stabilised it saw no need to cut the interest rate.
There had been mounting speculation that the Bank would cut the rate to 0.5% following sluggish growth and the drop in inflation last month.
UK GDP growth is currently at 0.2% after slowing last year due to weaker global growth and Brexit uncertainty.
In response, the Bank has revised its growth forecast for this year from 1.2% to 0.8%.
Inflation stood at 1.3% in December and the Bank expects the rate to remain below the 2% target throughout the year.
While the decision will bring some relief to savers who have seen rates tumble over the past decade, they are not out of the woods yet as the Bank has warned that it may cut interest rates if growth does not improve.
The Bank says: “With the risk of a no-deal Brexit falling recently, we expect the uncertainty facing households and businesses to fall. We also expect global growth to recover gradually. These developments should help growth here in the UK.
“If that does not happen, then we may need to lower interest rates to support UK growth and ensure that we return inflation to our 2% target sustainably.”
However, the Bank says that if the economy recovers and inflation starts rising, interest rates should go up eventually.
The Bank says: “If the economy develops as we expect, then upward pressure on prices should build gradually over the next few years. In that case, we think a modest increase in interest rates is likely to be needed to keep inflation at our 2% target.”
A cut in the Bank rate would have made things even worse for savers who have seen savings rates slowly eroded in the past year.
When the base rate falls, high street banks often pass this on to customers with cheaper loans or by cutting rates on savings accounts.
So while a drop in interest rates is often good news for mortgage borrowers, the opposite is true for savers.
Since the base rate was increased to 0.75% in August 2018, there have been over 1,000 cuts to existing variable savings accounts.
Anna Bowes, co-founder of Savings Champion, says today's reprieve is unlikely to keep savers immune from further cuts to their savings accounts.
She says: “Savers need to take matters into their own hands and find the very best rates available to earn as much interest as they can on their hard-earned savings. Leaving money to languish in a high street bank is the worst thing you can do, as they pay some of the worst rates available.
“For example, HSBC and Lloyds are paying just 0.10% on their easy access accounts, whereas Marcus is paying 1.35% AER. On a balance of £50,000, that is the difference of earning either £50 gross per year or £675 – but with the same access.”