Analysis: Retailers forced to put up prices as import costs rise while savings are being hit, from personal finance editor Margaret Taylor
WE are all a little bit poorer thanks to Brexit.
In the aftermath of the vote the value of the pound tumbled against both
the euro and the dollar and, aside from a small bump in the wake of the US presidential election, has failed to recover since.
This matters because the UK is a net importer of goods and while there is more demand for our exports because they are now cheaper for those elsewhere to buy, the cost of the items our retailers bring in from overseas has shot up.
READ MORE: Beyond Brexit: Economics will 'drive move to second independence referendum' in Scotland
Whether it is heating our homes, buying staples such as tea bags or pork, or splashing out on luxuries like Mac computers, the cost of living in the UK today is higher than it was before the June 24 vote.
This has been compounded by the fact that, with so much uncertainty over the eventual impact Brexit will have on the economy, there is no sign of wage growth anywhere on the horizon.
While that means the cash in our pockets is now not going as far as it used to, the value of any savings is being eroded too after the Bank of England cut its base rate from a historic low of 0.5 per cent to 0.25 in August.
At the time, Bank of England Governor Mark Carney said the Monetary Policy Committee “took these steps because the economic outlook has changed markedly” in the wake of the decision on Brexit.
The high street needed no encouragement to follow the bank’s lead.
Indeed, according to personal finance data service Moneyfacts there were 388 cuts to bank and building society savings rates in August, during which time just three accounts saw their rates rise.
Things have improved somewhat more recently, with the interest rate on 25 savings accounts rising during October. That number was far outweighed, however, by 240 savings rate cuts.
READ MORE: Beyond Brexit: Economics will 'drive move to second independence referendum' in Scotland
To make matters worse, as price comparison site MoneySuperMarket shows that the best cash ISA rate is currently sitting at one per cent, there are now very few accounts that are able to match or beat inflation, which despite dipping from one per cent to 0.9 per cent in October is expected to rise significantly in the coming months.
Rachel Springall, of Moneyfacts, said that of the total 636 savings accounts currently on the market, just 255 pay interest that matches or exceeds inflation and of those that do the vast majority – 238 – have restrictive criteria that mean savers will either have to wait or pay a penalty in order to access their cash.
The silver lining in all this is that with interest rates at such low levels the cost of mortgage borrowing is finally starting to come down.
According to Moneyfacts, the cost of an average five-year fixed rate mortgage has fallen significantly in the past year to just under three per cent. That compares with just under five per cent five years ago and 3.3 per cent in November 2015.
Mortgage rates are now so low, according to data company Experian, that millions of people across the UK could be better off switching from renting to buying, with those in Glasgow potentially being able to cut their housing costs by 28 per cent by doing so. Dunbartonshire, North Ayrshire and North Lanarkshire were all also named by Experian as being among the top locations where buying could be cheaper than renting.
Experian’s Jonathan Westley said: “With rents continuing to rise, property values staying steady and interest rates staying at historic lows, many may find it easier to meet mortgage payments than to pay their rent – potentially saving more than a hundred pounds a month.”
READ MORE: Beyond Brexit: Economics will 'drive move to second independence referendum' in Scotland
Of course, with many people now being faced with having no spare cash to save and nowhere decent to save it even if they did, the inability to build up a deposit will make such arguments academic for most.
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