MARK Carney was hailed as a breath of fresh air when he replaced Sir Mervyn King as governor of the Bank of England.
All savers are getting, however, is the stale scent of business as usual in Threadneedle Street: savers bearing the brunt of monetary policy. Since interest rates plunged to 0.5 per cent in March 2009, savers have been left at the mercy of inflation, watching rising prices erode the returns on cash accounts.
Retirees dependent on savings income have been hit hardest, an effect compounded by the losses many have incurred in turning to riskier assets.
Now it seems the misery will continue for at least three years, with the Bank following up Thursday’s MPC announcement by effectively committing to low interest rates. For savers, that represents hundreds or even thousands of pounds in lost income – a powerful disincentive to saving.
Of course, some are saving in a bid to raise deposits for their first home. First-time buyer activity has improved in recent months, due largely to improved availability of affordable mortgages. That resurgence will be short-lived, and not only because of the obstacles to saving.
The biggest threat to a sustainable housing market recovery driven by first-time buyers is a house price bubble. Unfortunately that’s what we’re getting, with the lessons of the pre-crunch bubble quickly forgotten.
Rising house prices have been greeted in recent weeks as a sign that the economy is on the up. It’s not. The increase is a function of an imbalanced market in which supply is constrained by a lack of affordable housing. The failure of successive governments to invest in new homes is pushing up both house prices and rents, with painful consequences for younger generations in particular. Add to that equation the current government’s Help to Buy scheme, serving to drive house prices up even further at precisely the wrong time.
The outcome, according to Ray Boulger, mortgage expert at John Charcol, could be house price increases of 6 per cent this year and 8 per cent the next.
Homeowners may rejoice, but it’s the last thing the housing market needs. So Carney’s arrival heralds more of the same, based on first impressions. In other words, while we need to boost savers and take the heat out of house prices, we can expect to get the opposite.