02 February, 2023, LONDON –

Following the Bank of England’s decision to increase the UK base rate to 4%, a panel of experts are in agreement that, although savers are likely to see better rates, these are unlikely to increase in line with the base rate.

The personal finance comparison site finder.com compiled an expert panel consisting of 11 academics, economists, mortgage and savings experts, and asked them for their predictions and opinions on the state of the UK economy and how the Bank of England’s approach is likely to impact the savings landscape.

Savers will be rewarded, but not as much as they might hope

The majority of experts on the panel agreed that savings rates are likely to improve, with 7 of 11 (64%) panellists expecting to see better saving rates following the BoE announcement. Despite these experts being in agreement that savings rates will increase, they do not believe that the full value of the rate increase will be passed on to the consumer.

Giles Coghlan, chief market analyst at HYCM explains: “While higher interest rates make borrowing money more expensive, in theory, this should mean that another rate rise should also lead to higher interest on savings accounts. However, in many cases, the average savings rate sits far below inflation.”

Kate Anderson, deputy editor at finder.com, added: “I expect that, while we will see some more competitive savings rates, banks are unlikely to pass on the full rate increase.”

Experts suggest switching to optimise your savings rates

Other members of the panel suggest that in order to make the most out of the base rate increase, savers should consider shopping around for better rates at other banks, making the most of switching offers that are likely to become available.

David McMillan, professor in finance at the University of Stirling, explains: “It is well-known that there is an asymmetry in pass-through by banks of interest rate changes (quicker to raise lending rates, slow to raise savings rates with higher base rates and vice-versa with lower base rates). However, this does open the opportunity to a bank to make a splash with a better savings offering, although there is still hesitancy by consumers in bank-switching.”

Jon Ostler, CEO at finder.com added: “Savings rates are very much on a provider by provider basis and we will see more rate increases if you are happy to shop around.”

Giles Coghian echoed this sentiment, citing the competition between banks as the necessary driving factor behind improving their savings offers to customers: “Traditional high street banks can sometimes slow to pass on an increase in the base rate to savers, so this is something to be mindful of. In general, expect better saving rates to be increasingly available as banks compete.”

Should the MPC be dovish or hawkish for the rest of 2023?

The Bank’s MPC has a difficult job balancing the base rate against a cost of living crisis and high inflation, so it was interesting to see the panel split on how the bank should act for the rest of the year.

When asked if the bank should be dovish (lower rates to encourage growth and borrowing) 6 of the panellists (55%) said this would be their approach.

Jon Ostler, CEO at finder.com, said: “With a weak economy and employment market there is a real danger of overdoing monetary tightening and we could end up in between a rock and a hard place and another hard place!”

David Hollingsworth, associate director at L&C Mortgages, said: “Reaching the peak of rate rises sooner rather than later should help borrowers adjust to the new rate environment and how it impacts them.”

When asked if the Bank of England should be hawkish (increase rates to curb inflation), 4 panellists (36%) thought this would be the best approach.

Dr Luciano Rispoli, senior lecturer at the University of Surrey, said: “The large inflationary shock experienced in 2022 can only be counteracted by aggressive hawkish BoE monetary policy actions. Thus, I believe MPC actions can only go [in] one direction.”

Stephen Sillars, content manager at Chip, said: “The UK needs to get a handle on inflation so it’s not really in a position to stop raising interest rates, but the Bank of England can’t ignore the fact this may push the economy into more of a downturn than already predicted. It’s a delicate balance.”

The Bank faces a difficult decision, though, as explained by Giles Coghlan, chief market analyst at HYCM: “The head says grind inflation into the ground and raise interest rates hawkishly. For the longer-term health of the economy, historically speaking, this is the best thing to do. However, the heart says go a bit easy as people are struggling and many people striking are only doing so as they can’t meet basic needs.”

For more detailed information on the panel and their thoughts and predictions, visit: https://www.finder.com/uk/base-rate-survey

If you are interested in appearing in the next panel, please email: matt.mckenna@finder.com