Cascade Commentary

Rates remain flat over 2019 as Brexit delays decision-making

December 2019

We began 2019 expecting two further rate hikes. The UK was set to leave the European Union (EU) by 29th March 2019 and it was expected that savers would benefit from the certainty that the exit would afford in the market.

What transpired was more political unrest that saw the UK’s exit delayed twice until 2020 and Theresa May stepped down as Prime Minister to be replaced by Boris Johnson who has recently secured a historic Conservative majority in a General Election under the mantra of “Get Brexit Done”.

With the continued political unrest, much of the UK economy has seen stagnant growth as investment and spending decisions have been delayed. Savers have suffered in this economic climate as well as the high street as many have sat in limbo awaiting certainty over the UK’s trajectory either inside or outside of the EU.

As Johnson secured victory in December 2019, markets responded well to the notion that certainty was coming with the UK’s exit now viewed as being imminent. Indeed, at the time of writing it is Johnson’s intention to enshrine this in law so that parliament becomes unable to execute further delays. The historic majority won by Johnson has served to provide a clear Leave mandate given Johnson’s unequivocal stance in his election manifesto. This removes an argument for a second referendum and tasks the Conservative Party to enact the final exit.

The impact to savers has been clear in that rates which were expected to increase at the start of the year have remained fairly consistent, tailing off as the year has drawn to a close.

At the start of the year, Personal savers could earn between 1.50% Gross/AER on Instant Access (on offer from Marcus by Goldman Sachs, West Brom Building Society and Virgin Money to name a few in a competitive market) and 2.70% Gross/AER on 5 years (payable at the start of the year by Atom Bank, BLME, Close Brothers and Vanquis Bank). As we end the year, Instant Access rates have fallen slightly to 1.45% Gross/AER while 5 year rates for Personal savers are 2.38% Gross/AER, on offer from United Bank UK at the time of writing.

Marcus by Goldman Sachs has reduced the rate paid on its previously market-leading Instant Access rate to 1.35% Gross/AER for new customers, although existing customers will continue to earn the 1.45% Gross/AER rate until their first twelve months has passed. The provider said this action has been taken amidst a “general lowering of interest rates” however others have stated that as the bank approaches £25bn of customer deposits, it is seeking to stem inflows into the product to avoid a need for ring-fencing its retail and banking operations as per UK legislation.

Non-personal savers have seen their returns remain fairly flat over the period. At the start of the year, Corporate savers could earn 1.00% Gross/AER on excess cash on Instant Access and this remains broadly similar with market-leading rates at 1.05% Gross/AER at the time of writing.

5 year rates have been consistent with Cambridge & Counties Bank remaining the market leader at 2.50% Gross/AER. Cambridge & Counties Bank is a relatively new market entrant having launched in 2012. The bank has a strong pedigree in its ownership being backed by both Trinity Hall, Cambridge University and the Local Government Pension Fund in Cambridge too. The bank provides competitive savings rates and delivers an excellent customer experience for corporate, charity and trust savers.

As we look forward to 2020, savings rates are not expected to improve in the near-term as two members of the Monetary Policy Committee (the committee that decides on interest rate changes to keep inflation around a 2% target level) called for an immediate cut to the 0.75% official Bank Rate. It is now expected that the Bank Rate may fall to 0.25% in the year ahead as the prospect of Brexit actually taking place became more apparent in light of Boris Johnson’s resounding victory in the December General Election.

Against such a backdrop, Fixed Term accounts will offer security of rate but will not permit access to funds if savers require liquidity for either a rainy day or a known liquidity event. Should you wish to learn more about what is available, do get in touch and we’ll be happy to let you know your options to maximise both your depositor protection and your savings return over the year ahead.

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