Brexit: Bank of England warns of base rate cut in blow for savers

If you’re a saver, you might want to consider locking into a top-paying deal as interest rates could be set to slide even lower.

Savers have been dealt yet another blow after the Bank of England indicated interest rates could be cut this summer.

One week after the UK voted to leave the EU, Bank of England Governor Mark Carney warned that further stimulus could be needed to prop up the economy.

Speaking yesterday (June 30), Carney said: “In my view... the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.”

Since last week’s momentous vote, we’ve seen massive financial volatility.

The pound has plummeted, as have stock markets although these have since rebounded, our Prime Minister has quit and the economic outlook could be best described as ‘uncertain’.

With this in mind, the Bank of England is keen to bolster confidence, with a reduction to the base rate the most likely option.

Earn a top rate on your savings: compare accounts

When might rates be cut, and by how much?

With the base rate already at a record low of 0.5%, a cut could see it fall to just 0.25%.

Ben Brettell, senior economist at investment firm Hargreaves Lansdown, claimed this could happen as soon as this month, although an August cut would be more likely.

“The Bank will update its forecasts and make a full assessment of the economic picture in its August Inflation Report,” he said.

“This probably leaves August as the likeliest date for a rate cut, though swap markets are pricing in a July cut as more likely than not (a 57% probability), and a 73% chance of a rate cut by August.”

Brexit: base rate cut warning

What this means for savers

At this point, it’s worth noting that the Governor has hinted at tinkering with rates in the past only for nothing to change, so a cut is by no means a certainty.

But assuming it happens, it’d be yet more bad news for savers as already-miserly rates would be dragged lower still.

If you do have savings, you might want to consider locking into a top-paying fixed-rate savings account before rates fall.

For those with smaller savings, an often overlooked option could be current accounts. Nationwide will pay you a whopping 5% on balances up to £2,500 with its FlexDirect Account, although only for a year, while TSB offers an identical rate on the first £2,000 you deposit in a Classic Plus Account.

If you have a larger savings pot, Santander will pay you 3% on balances up to £20,000 with its 123 Current Account.

The bank does charge a £5 monthly fee, but it’s still a very attractive offer if you can get anywhere near that maximum threshold.

The obvious warning when using current accounts for savings is that the rates are variable, and so could fall in the future.

That said, they have remained fairly constant in recent years, and would need to fall some way to be less attractive than most traditional savings accounts.

Earn a top rate on your savings: compare accounts

What it means for borrowers

While savers might want to rush out and switch savings accounts, homeowners might want to adopt a wait-and-see approach in the wake of the Brexit vote.

That’s because mortgage rates are expected to fall even lower in the coming months.

Even if the base rate isn’t cut, the uncertainty created by Brexit will likely see rates remain at their current record low for even longer – and that will be priced into longer-term mortgage deals.

Brexit uncertainty

More Brexit fallout

The last week has been incredibly tumultuous. Not only has the Prime Minister stepped down, but Boris Johnson, the spearhead of the Leave campaign, has ruled himself out of the running to replace him.

It leaves the country lacking clear direction at the most financially uncertain time since the global crash.

With the benefit of hindsight, we polled our readers on how they feel about the decision to leave the EU.

In the (unlikely) event of a second referendum, only 43% of the almost 1,000 people polled said they would vote Leave.

Contrast this to a poll we ran in the build up to last week’s vote, which showed 54% support for the Leave campaign among our readers.

Does that mean some readers are now regretting the decision to leave? Perhaps.

A separate poll we ran yesterday found that almost one in eight (12%) readers would vote differently if the referendum were held today. If you are one of those who regrets voting Leave, let us know why in the poll below.