Gordon Brown to protect pensioners and savers from falling interest rates

05 January 2009 / by Rachael Stiles
The Prime Minister has said that he will move to protect the investments of pensioners and savers who have seen their incomes diminish drastically amid wide speculation that the Bank of England will cut rates again.

When it meets later this week, economists predict that the Bank of England's Monetary Policy Committee will cut rates even lower than the current level of two per cent, perhaps even seeing them go as low as one per cent.

Savers, and particularly pensioners, who rely heavily on interest from their investments to top up their pensions, have been suffering as the problems in the economy have forced the Bank of England to cut rates by 2.5 per cent in the last quarter of 2008.

Speaking on The Andrew Marr Show yesterday, Gordon Brown said that the Government has been "looking at means by which we can help pensioners and others with their savings", adding that he is "conscious that people who have saved money all their lives, need the best deal that is possible."

Mr Marr asked the Prime Minister what would become of people who have distanced themselves from the spending boom, those "who haven't splurged, who haven't maxed their credit cards and are living on investments, most of them pensioners with interest rates almost at zero."

These people are facing "an utterly bleak time and they're very, very worried about the future." he told Mr Brown. "They feel that they're being made to pay for the people who behaved badly." he added, and if interest rates keep going down there is little the Government can do to help them.

But Mr Brown defended the Bank of England's slashing of interest rates, saying that without such cuts inflation would have got out of control, which would be the worst thing that could happen to pensioners and others on fixed incomes or who have limited savings, and that "it's necessary at the moment for the economy to have low interest rates" in order to improve economic activity.

"So the answer," he says, "is not that there be high interest rates and high inflation. The answer is that we do more to help savers, which is what we're looking at."

In defence of accusations that banks are being bailed out while people lose their homes to the recession, he said that "We're not helping banks per se. We're helping secure people's savings and their ability to use the banking system, so that they have some security in their lives. And as people have gone on in this crisis, they've realised just how important the financial system is to everything we do in all our lives."

The Prime Minister refused to confirm whether or not he thought rates could come down to as little as one per cent, adding that this was something for the Bank's governor Mervyn King to decide.

If rates fall to one per cent, this will be their lowest level since the Bank was founded in 1694, and economists say that it could start costing savers to keep their money in a savings account, instead of the other way around.

Rachel Thrussell, head of savings at comparison site MoneyFacts.com told BBC Radio 4's Money Box programme that if rates are cut on Thursday it is difficult to predict how low savings accounts interest rates might go.

"It's getting to the point now with the straightforward accounts there is nowhere for them to go." she said. "There's a lot now paying 0.1%, 0.25%, 0.5%, so if base rate does go down again will they be able to pass this on to savers?"

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