Savings, the recession and under the mattress
Understandably people dependent on investment income to maintain their living standards are not too happy about interest rates getting lower each time the Bank’s Monetary Policy Committee meets. It was no doubt this that led to the Conservative proposals to cut tax on savings. Although we rubbished that idea here there clearly are some people who are suffering.
But it’s not all bad news for savers. Such is the strangeness of the recession we are in, many predict that inflation (at least on the RPI measure) will go negative later this year. So we could end up with the strange position of interest rates close to zero ( so little income) – but real interest rates (the difference between inflation and nominal interest rates) actually quite significant.
For once there will be a real rate of return on anything stuffed under the proverbial mattress.