Charles Bean, the deputy governor of the Bank of England, has told English savers to stop complaining about low interest rates and start spending more money in order to boost the economy.
The interest earned on savings deposits is below the rate of inflation in England right now, where inflation has been well above the central bank’s target this year. Interest rates on savings accounts average about 0.23%. The situation in England stands in stark contrast to the U.S. where inflation has been falling and recently came in at 0.0%.
Mr. Bean has told savers that they should ‘not expect’ to survive off of their interest payments alone.
Mr Bean said he “fully sympathised”. But he continued: “Savers shouldn’t necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit.”
He added: “Very often older households have actually benefited from the fact that they’ve seen capital gains on their houses.”
Mr Bean said that encouraging Britons to spend was one reason why the Bank had cut interest rates. They have been held at 0.5 per cent for 18 months, hitting rates offered on savings accounts.
The strategy had led to Mervyn King, the governor, receiving many letters of complaint.
But it was designed to return the economy to a reasonable level of activity as quickly as possible, he said. “The faster we can achieve that, the sooner interest rates will get back to more normal levels.”
Had the Bank not acted, “unemployment would have been higher, wage growth would have been lower,” Mr Bean added.
So the message is spend now, and they’ll have a reason to raise interest rates in the future.