On 5 July 2007 the Bank of England raised interest rates to 5.75%.
It marked the final time the Bank rate was to be lifted – the benchmark plunging ever since to its current record low of 0.25% – a consequence of the financial crisis and then the Brexit vote.
Analysis of the consequences of low rates since their decade peak puts a cost on the impact for savers and borrowers.
The research by financial service firm Hargreaves Lansdown, to mark the 10-year milestone, suggests an estimated eight million Britons have never seen an interest rate rise by the Bank of England in their adult lives.
That could soon change as a growing number of Bank policymakers state their support for a rise in Bank rate to curb Brexit-related inflation, despite concerns that tightening could damage the country’s stuttering economy.
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The study showed that, inevitably, savers had suffered the most in the past decade.
It found that £1,000 held in a typical instant access savings account in July 2007 would be worth just £878 in today’s money when the effects of inflation are taken into account.
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It calculated that £1,000 invested in the stock market a decade ago could be worth £1,323 now while average mortgage rates have fallen from 5.8% in July 2007 to 2.6% – aiding affordability despite strong house price growth in some parts of the UK.
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The report was released not only as policymakers juggle the threat of inflation to the economy but also the risk that many households will struggle to cope with rising rates when monthly outgoings increase.
The Bank is also keen to ensure lenders have not repeated mistakes of the past through poor controls – putting customers and themselves at risk.
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Laith Khalaf, a senior analyst at Hargreaves Lansdown, said: “It’s been a decade since the last interest rate rise, so it’s little wonder that borrowers have got used to the idea of cheap money.
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“Low interest rates undoubtedly helped to prop up the economy in the wake of the financial crisis, by lowering the cost of debt for UK consumers and companies.
“However, the burden of loose monetary policy has very much fallen on those with cash in the bank, who have seen the interest they receive wither away to virtually nothing.”
The company’s analysis concluded that the Bank finds itself in a “difficult situation” on the prospect of a rate rise.
It argued that while an increase could help to “wean investors off borrowing”, it would make people’s existing debts more expensive to pay off – eating into household budgets and putting downward pressure on the economy.
Source: Sky