What Does 2020 Hold In Store For Business Deposit Account Rates?

As we look to the year ahead and try to predict what it may hold in store for the economy and business deposit account rates, the outgoing year has signed off with a flourish of results reflecting the economic headwinds borne out of the political uncertainty which epitomised 2019.


Key indices point to economic downturn in December

The IHS Markit/CIPS purchasing managers’ index (PMI) for December showed that the UK’s manufacturing sector suffered its sharpest drop in output in seven and a half years and that housebuilding activity declined for the seventh month running.

Consumer spending, which has mitigated the impact on the economy of lower investment by businesses since the Brexit referendum of 2016, also fell significantly. The British Retail Consortium (BRC) reported an annual drop in sales of 0.9% for November and December combined, and 0.1% for the full year - the first negative year on record since the BRC began reporting results in 1995.

As a barometer of the economy’s health at the close of the year, the British Chamber of Commerce’s (BCC) quarterly survey painted a similarly bleak picture, with results highlighting service sector deterioration and further contraction of export orders.

Rob Kent-Smith, Deputy Director and head of GDP (Gross Domestic Product) analysis the Office for National Statistics, said, 'Long term, the economy continues to slow, with growth in the economy compared to the same time last year at its lowest since the spring of 2012.'


“The latest GDP data adds to signs that the UK economy stagnated at best in the fourth quarter of last year.”

Chris Williamson, Chief Business Economist at IHS Markit - 13 January 2020


Can the economy bounce back in 2020 and what are the implications for the business deposit market?

Having spent the last fortnight wishing friends and colleagues a ‘Happy New Year’, will it indeed prove to be a better year from an economic perspective, and what are the key events this quarter which will determine its direction and in turn potentially influence Bank of England policy and base rate decision making?

To drive economic recovery, BCC Director General Adam Marshall has called on the UK Government to “take big decisions to stimulate growth” and said that “the end of political deadlock must also bring action to renew business confidence and tackle the prolonged stagnation that’s affecting so much of the UK economy”.

On March 11, Sajid Javid will map out the Government’s vision for the economy in his budget statement. The Conservative’s majority in the House of Commons now gives him significant scope to radically reform taxes and public spending. Although neither the Queen's Speech in October nor the Party’s election manifesto referenced income tax cuts or changes to stamp duty, he could use this new-found latitude to push through policies on both to stimulate the economy.

In March, Andrew Bailey, the Bank of England’s former Chief Cashier (2004 – 2011) and Deputy Governor (2013 – 2016) will re-join the institution as Governor, returning from the Financial Conduct Authority which he has headed up for the past four years. He will be in role in advance of the Monetary Policy Committee (MPC) meeting on the 26th of March, but outgoing Governor Mark Carney has already indicated the central bank’s preparedness to cut the base rate to boost the economy.


“If evidence builds that the weakness in [economic] activity could persist, risk-management considerations would favour a relatively prompt response”.

Mark Carney, Governor of The Bank of England – 9 January 2020


Carney also remarked that there was an “open question” as to whether the UK’s monetary policy framework “should be adjusted to embed a commitment to hold rates lower for longer”.

That two of the nine members of the MPC (Jonathan Haskell and Michael Saunders) voted for a 0.25% reduction in the base rate from its current 0.75% level in both November and December indicates that calls for a potential rate cut are already on the MPC’s agenda and support for it will gather momentum if indicators of an imminent recovery are not forthcoming.

On Friday, MPC member Silvana Tenreyro told a Westminster conference that she would vote for a rate cut “in the coming months” if there was no sign of a pick-up in the economy. She said that if uncertainty over a post-Brexit trade deal between the UK and the EU continued to weigh on demand, “my inclination is towards voting for a cut in rates in the near term”.

In an interview with the Financial Times this weekend, MPC member Gertjan Vlieghe also confirmed that he would consider voting for a rate cut.


“I really need to see an imminent and significant improvement in the UK data to justify waiting a little bit longer.”

Gertjan Vlieghe, Bank of England Monetary Policy Committee member


Early indicators from high street retailers suggest that any post-election ‘bounce’ in consumer confidence has failed to translate into increased spending over the Christmas period to kick-start the economy and provide some much-needed impetus going into the new year. If key economic indices continue to show that there has been no material post-election and/or post-budget ‘bounce’, or if Brexit negotiations are perceived to be getting bogged down and creating further uncertainty, then there is a greater likelihood that the MPC will cut the base rate to give the economy a shot in the arm through the stimulus of cheaper lending.


What would a cut to the base rate mean for deposit rates?

A reduction in the BoE’s base rate would put additional downward pressure on deposit interest rates. In 2019 across the UK Savings market there were 750 rate cuts to existing savings accounts, compared to just 137 rate increases. A reduction in the base rate will compound that trend and make it all the more important for savers and finance directors to be vigilant and pro-active if they are to continue to optimise the returns from their cash deposits.


"Shop around, don’t be limited by the mainstream banks and be sure to look at those providers that may be less familiar."

Shane Hickey – Finance Journalist, The Observer


A vigilant, pro-active approach is key to optimising returns

Monitoring the market to identify the best deposit rates and opening multiple accounts to achieve the best possible returns may sound prohibitively time-consuming. Indeed, YouGov research last year showed that 39% of businesses and more than one in ten (12%) individual savers cited the hassle associated with opening new accounts as a reason for not switching their money.

As with so much today however, technology holds the key to better, more efficient outcomes. Flagstone’s online cash deposit platform requires just a single application to access hundreds of deposit rates from more than 40 banks and building societies, including;

  • Instant Access Accounts paying up to 1.42% AER/Gross1
  • 95 Day Notice Accounts paying up to 1.80% AER/Gross1
  • 18 Month Fixed Term Deposit Accounts paying up to 1.85% AER/Gross1

Accounts can be opened at the click of a mouse (rather than taking weeks or even months) and with hundreds of instant access, notice and term deposit accounts available, providing access to market-leading and exclusive rates 24/7, clients can be assured that their cash is working as hard as possible for them throughout 2020 and beyond.

To learn more about Flagstone, and how the platform can support you and your plans for the future, please watch this short video and click here to open an account.

1 Correct as at 13th January 2020.


Adviser Spotlight: James Lindley, Castell Wealth Management

Wednesday, 17 May 2023
Read more

Flagstone vs Premium Bonds – more bang for your buck?

Monday, 15 May 2023
Read more

What the 0.25% base rate hike means for your savings

Thursday, 11 May 2023
Read more