Pass higher rates on to savers, Bank of England Governor Andrew Bailey says to banks, amid claims they have been speculating.
Bank of England Governor Andrew Bailey has called on lenders to pass interest rate hikes on to their savers, amid claims they have been speculating.
Speaking after the release of banks’ stress tests, which gave lenders a clean bill of health, Bailey made it clear that the firms were financially strong enough to compete and offer better deals.
Banks have been criticized for making only paltry increases in the rates offered to interest access savers while borrowing costs rise, leading to higher profits.
Chancellor of the Exchequer Jeremy Hunt has backed calls for them to offer better yields.
Bailey said yesterday: ‘It’s important that rates pass through.
Plea: Speaking after the release of the banks’ stress tests, Bank of England Governor Andrew Bailey (pictured) made it clear that the companies were financially sound enough to offer better deals.
‘It is also important that we have competition in the banking system that encourages banks to compete on savings rates.
‘A more resilient banking system will be able to compete.
“They don’t have an arm behind their back because of the need to achieve financial stability.”
The Bank’s stress tests showed Britain’s eight largest lenders had enough capital to weather an imaginary doomsday scenario in which house prices fall by almost a third and unemployment soars.
“The capital and liquidity positions of major UK banks remain strong and profitability has increased, allowing them to enhance their capital positions and support their clients,” the Bank said.
Bailey said the strength meant lenders didn’t have to overcompensate by generating a large net interest margin, which is the gap between lending and saving rates that is a key measure of profitability.
“The resiliency of the banking system is not a constraint on banks managing their net interest margins and therefore managing the rates they pay to savers and the rates they charge on mortgages,” the Governor said.
The Bank of England’s benchmark interest rate shot up from 0.1 percent in December 2021 to 5 percent today.
Lenders predict it will hit 6.4 percent by the end of this year.
And they have responded by raising interest rates on loans.
The average rate on a two-year fixed-term mortgage is 6.7%, according to the latest figures from financial website Moneyfacts yesterday, surpassing the level seen after Liz Truss’s disastrous mini-budget last fall.
Yet savers have been left with easily accessible savings rates of just 2.55 percent.
Hikes: Bank of England benchmark interest rate shot up from 0.1% in December 2021 to 5% now and lenders predict it will reach 6.4% later this year
Banks point out that there are better deals available for accounts that lock up the money for a set period of time.
The latest figures show a typical rate of 4.95 percent on a one-year savings agreement.
Yet that hasn’t silenced the chorus of calls to do better from millions of customers who are watching inflation erode the value of their savings.
MPs on the House of Commons Treasury Committee have been vetting banks on the issue since earlier this year, but complained last week that rates still looked “too low”.
They noted that rates on easily accessible savings accounts at the big four banks were between 0.9 and 1.7 percent.
MPs questioned whether customers were being offered fair value or were instead ‘exploited’ due to their loyalty.
Last month, Hunt accused banks of delaying the issue and vowed to take action to get savers a better deal.
He said he had told bank bosses “in no uncertain terms” that it was taking “too long” to pass on the increases in the Bank of England base rate.
