Bank of England deputy governor Charlie Bean says the Bank’s current monetary policy is aimed at getting people to spend their savings.
In an interview with Channel 4, Bean says that at a time of historically low interest rates it makes sense for people to “eat into their capital a bit”.
Bean says the lower returns for savers are a policy aim, rather than a by-product of low rates.
He says: “I wouldn’t want to call it a side effect. I think it’s important to realise that actually it’s a key way that monetary policy affects the economy by affecting the incentive to save.”
“What we’re trying to do by our policy is encourage more spending, ideally we’d like to see that in the form of more business spending but part of the mechanism that might encourage that is having more household spending so in the short term we want to see households not saving more but spending more.”
Bean says savers should bear in mind that they benefited from high levels of interest rates in the past and the same will apply in the future.
Pension consultant Ros Altmann says Bean’s comments reveal a “short-sighted policy” from the Bank of England which undermines the interests of savers.
She says: “This will not solve our problems and, with an ageing population, damaging pensions just means that more people will end up in poverty, fall back on benefits or be forced to take more risks with their money that could wipe out their capital.
“The Bank of England needs to urgently re-examine its short-sighted policy stance. Growth at all costs is not a recipe for long-term success, indeed isn’t that how we got into the crisis in the first place? Central banks kept interest rates too low for too long, encouraged too much borrowing, facilitated financial speculation and led people to believe we could all live beyond our means without worrying about the future consequences. It may make people feel a bit better for a while to keep spending and not saving, but this will lead to an even worse crisis in future.”