Outlook: Good news. Interest rates are going down – for millions of borrowers. Bad news. Interest rates are going down – for millions of savers. While falling interest rates make profligate borrowers better off, it makes those who have laboriously saved for a rainy day worse off. As a nation, we have become so seriously indebted that reducing the cost of money puts more back into the economy than it removes from those who rely on their savings for all or part of their income.
Nonetheless, the effect is to encourage profligacy over responsibility. There was a glorious period early on in the banking crisis when money was so scarce that savings rates shot through the roof. It hasn't taken long for the banks to find ways of paring these rates down, and already it is hard to find a rate, even for term money, that pays more net of tax than the rate of inflation.
For those on the verge of buying an annuity, the situation is little short of disastrous. If they'd left their money in equities, it would have lost half its value over the past year, while annuity rates are now plunging to keep up with the constant reduction in interest rates. In just one year, many savers and pensioners will have had their income expectations more than halved.