3rd March 2016
This week marks the seventh anniversary of the introduction of quantitative easing in the UK (QE) and of Bank of England base rate being cut to 0.5%.
During that time, the loose monetary policy has had a profound impact on savers and borrowers where stock, bond and property prices have surged while returns on cash savings have been annihilated.
Research from Hargreaves Lansdown shows that since March 2009, the average mortgage rate has plummeted by 31%, while house prices have surged by 32%.
In addition the amount of money in cash accounts paying no interest has rocketed from £58bn to £106bn. The interest lost by savers has been an eye-watering £160bn.
On the plus side, UK stockmarket investors have enjoyed an 87% gain– or 138% with dividend re-invested while government bonds have returned 47%. But elsewhere pension annuity rates have tumbled by 27%,
Laith Khalaf, senior analyst at Hargreaves Lansdown highlighted however that despite central banks flooding the global economy with cheap money, growth is still in the doldrums, particularly in Europe and Japan, which have both seen colossal stimulus packages thrown at the problem.
He said: “Since 2009 the stock market has enjoyed a strong bull run, but one characterised by a high degree of pessimism over its foundations. The actions of central banks go some way to explaining this uneasiness, as investors have been wary of being left without a chair when the music stops.
“The worry haunting financial markets at the moment is that we have actually hit the peak of the post-crisis economic cycle and are slipping back into a global slowdown.
“Meanwhile after the extraordinary lengths they have already stretched to, central banks are running low on ammunition to stave off recessionary forces.”
Since the US raised interest rates in December, expectations for the UK to follow suit have evaporated.
It appers interest rates are set to remain low for much longer as concerns over global economic growth mean the likelihood of interest rates rising in the UK looks more remote than it has for years.
Adrian Lowcock, head of investing at AXA Self Investor said: “Savers had some respite in 2015 as the absence of inflation meant that they actually earned a real return on their deposits. However, this looks set to be a temporary effect. The outlook for cash savings looks worse than ever and interest rates offered on the best savings accounts could fall further.
“In the meantime equities continue to offer attractive yields for investors. Companies can also grow their dividends ahead of the rate of inflation which in turn would help drive share prices higher.
“Equities are an attractive long term investment for those looking to generate an income in retirement or to grow their investments, but do come with risk.”