As we enter the last week of campaigning in the run up to the General Election, we consider what the different potential outcomes on 12 December could mean for the cash deposit market and your savings.
How the different outcomes could impact the base rate
The Bank of England’s Monetary Policy Committee (MPC) is due to make a decision on the base rate on Thursday, 19 December, just one week after the General Election and the outcome of the election could have a significant impact on the outcome of the MPC’s rate setting in the coming months.
Economists at Capital Economics1 predict that if Boris Johnson wins a clear majority and the Conservatives manage to deliver a Brexit deal by 31 January, the base rate could double to 1.50% by the end of 2021.
However, if Labour wins the election, they expect the base rate to be cut in early 2020 from 0.75% to 0.50%.
Similarly, if there is a hung parliament, or if Brexit is delayed once again, they forecast that the base rate will fall to 0.50% by May 2020, and if Britain leaves the EU without a deal on 31 January, that the base rate could be reduced to just 0.25%.
The impact on inflation
While the potential outcomes for the economy are wide-ranging, promises of increased spending from both parties will materially increase inflation.
As the rate of inflation rises it will erode the value of deposits and interest in real terms. To counteract the negative effects of growing inflationary pressure, a base rate increase would be required as a catalyst to boost market deposit rates.
Savers have had a tough year amid political and economic uncertainty which has seen rates fall to their lowest point in years, and there is now little time left for consumers and finance directors to protect their cash deposits from potential negative implications of the General Election.
Moreover, it’s all the more difficult to plan for the unknown when the possible outcomes are at opposite ends of the spectrum. Will the base rate rise or fall? Will banks begin to increase savings rates or will rates continue to languish? If inflation does rise, then how quickly?
These are pivotal questions that, unfortunately, no one knows the answers to at the moment.
Nonetheless, savers looking to protect the value of their cash can secure best-in-market rates on an ongoing basis by using Flagstone.
Flagstone is an online cash deposit platform that provides access to exclusive and market-leading interest rates on cash deposits. Savers can open multiple accounts upon completion of a single application and deposit cash across a choice of 38 banks and building societies.
This provides an efficient way to diversify deposits across a number of accounts with different banks to make the most of the deposit protection provided by the Financial Services Compensation Scheme2.
Importantly, the platform provides savers with a quick and easy way to identify inflation-beating rates from across the market and to open accounts quickly and easily.
To learn more about Flagstone, as you consider the year ahead and what 2020 might bring.
1 Capital Economics is an independent international economic research company providing macroeconomic, financial market and sectoral analysis, forecasts and consultancy.
2 Financial Services Compensation Scheme deposit protection is currently £85,000 per depositor (and £170,000 for joint account holders) per authorised bank. For more information visit fscs.org.uk