Are we going negative on Bank of England interest rates?

The new head of the Bank of England (BofE), Andrew Bailey has had to deal with a global pandemic causing a huge slowdown in the UK economy. This has led to the BofE starting to consider a negative Base Rate for the first time. This is merely an idea by Mr Bailey, but would be a first for the UK if imposed. 


Base rate, as it’s commonly known, is what the BofE charges banks when they borrow money. This is what typically influences the interest rates that banks provide consumers in terms of mortgages, loans, etc. Currently the BofE base rate is at 0.1%.  Due to the effects of Covid-19 on the economy, the BofE has been floating the idea of negative interest rates. This could have a dramatic shift on the UK banking sector. However, while it’s not been attempted in the UK before, negative interest rates do exist in other developed economies. 


The same way in which base rate effects mortgages and loans this can also have an effect on interest rates for saving accounts. Therefore, as other banks have had to reduce their savings rates, as to not stifle the competition NS&I have also had to lower their interest rates. 


NS&I has taken the decision to cut the interest rate on its most popular product the “Direct Saver” account. The current interest rate has dropped from 1.00% to 0.15%. To put this in context, that’s a difference of £85 on savings of £10,000 over the course of one year. While 1% isn’t much to write home about this will still be a negative blow to keen savers especially in this current market. 


Whilst it’s key to have an emergency cash fund (for example 3 – 6 months household expenses), it’s also important to consider your savings are at least keeping up with inflation over the medium to long term (currently RPI at 1.1%). 


If you would like to discuss ensuring your emergency cash fund is at levels comfortable for you or you feel it’s time to deploy excess cash savings in to the market – seeking potential inflation beating returns – please get in touch.

020 3434 2718




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