Since the end of August savings rates have tumbled unceremoniously, making life harder for savers looking for a good deal. So, what is going on? There are several plausible explanations for the raft of rate cuts from saving providers. And much of it joins together to paint a wider negative picture. Savings providers could be correcting their rates from wrongly-anticipated Bank of England rate rises. The global economy until quite recently looked set to keep growing and policymakers to tighten monetary policy. But in the past few months, economic indicators in the UK, Germany and other developed countries have started flashing for a recession.
Savings providers could have wrongly anticipated a rate rise, and now reversed course to anticipate rate cuts. This is more pronounced thanks to fears over a no-deal Brexit that could lead to a bigger rate cut from the Bank of England too. Another related reason, and perhaps more concrete, is that investors are pulling their cash out of the stock market thanks to recession jitters. Choppy economic data, threats of a trade war between the US and China, and other events on the horizon such as Brexit, are causing ordinary investors to flee equities and pile into old-fashioned cash savings.
This in turn is overwhelming demand for savings providers' products and forcing them to disincentivise more new deposits. Whether or not the rates continue to plummet remains to be seen.
About the Author: Glen Callow
