David Blanchflower, former monetary policy committee member of the Bank of England, has told media outlets that he believes interest rates will remain below 1% for at least another five years. This is good news for people with debt, but bad news for savers. However, Lord Mervyn King, former governor of the Bank of England has issued a stark warning. He says that slashing interest rates was a good move at the start of the recession, but continuing to do so is nothing more than a temporary solution and policy makers really need to tackle the underlying issues first. So how does this affect savers and borrowers, and how does it affect those with the aim of starting their own business?
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Low Interest Rates and a Slow Economic Recovery
Interest rates have remained at an all-time low since 2008. In many ways, this has been a good thing and the UK economy is now in good shape compared to many other global economies. Despite this, recovery has been very slow and we are not out of the woods just yet. Traditional areas of strong economic growth in the Far East are showing worrying signs of decline. This, coupled with political upheavals in the Middle East, is having an effect on all major economies.
A New Financial Crisis
Lord King warns that another financial crisis is not too far around the corner. He points out that although the UK banking sector is a lot safer than it was at the start of the recession, there are still a number of short-term flash spots. Euro-zone problems affect the UK and if things start to go badly wrong in the EU, Great Britain will almost certainly be affected. Financial and political upheaval inevitably has a big effect on the financial markets, so UK consumers need to take steps to manage their assets and maximize their savings and income.
Debt is Cheap
The best bit about low interest rates is that debt is relatively cheap. Mortgages and personal borrowing rates are extremely low right now, so it is worth shopping around for a better deal if you are paying over the odds. Multiple loans and credit card balances can be consolidated into one low-rate personal loan and a fixed rate mortgage deal could be worth switching to, even if you are locked into your current deal (but do the math first, just to be sure).
Make Savings Work Harder
Savings are earning next to nothing right now, so stashing your cash in a savings account is not necessarily the best plan. Instead, make your savings work a bit harder by investing in property or starting a small business from home. It costs virtually nothing to start an e-commerce business, so check out a Shopify review and start planning your online business.
We are not quite at the point where negative interest rates rule, but some banks are beginning to slide into negative interest territory. Avoiding risk completely is not a good move. Instead, spend some of your money and keep the economy moving. That way you won’t end up paying banks to keep your money safe.