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High street banks told to pass latest Bank of England interest rate rise on to savers

High street banks are under growing political pressure to raise the interest rates they offer savers after yet another hike in the Bank of England base rate.

Increases in the returns available from savings accounts have lagged far behind the Bank’s interest rates, even as mortgages have risen rapidly.

MPs and campaigners have called on banks to be more generous towards their customers rather than growing their profit margins, and the Commons Treasury committee has written to large lenders asking them to justify their policy.

The committee’s chair, Conservative MP Harriett Baldwin, told i: “Rather than continue to drag their feet, let’s hope the banks pass on the latest base rate rise to their long-standing loyal savers.”

The Bank said the average interest rate available on instant access savings accounts rose by just 1.42 percentage points between November 2021 and March this year, despite its base rate rising from 0.1 per cent to 4.25 per cent in that period. Meanwhile the interest rate on a two-year fixed mortgage with a 25 per cent deposit had increased by 3.22 percentage points.

Ros Altmann, a Conservative peer and former pensions minister, warned that older people were being worst hit by the failure to increase returns on savings.

Writing for i, she said: “Banks have been increasing their margins, being much faster to pass on rising rates to borrowers than savers, which undoubtedly hurts older people who are often struggling on very low pensions amid the cost of living crisis. They are particularly affected because the fastest price rises are for basic essentials that pensioners rely on more than younger people, such as food and energy.”

Former Bank of England deputy governor Sir Charlie Bean said that it was “premature to be talking about rate cuts before well into next year” because of the persistence of inflation. He added: “I think you’ll see pressures on banks – rates are so low now that if they want to hang on to savers’ deposits, they will have to consider raising rates.”

Under new regulations coming into force at the end of July, banks will have to “justify and explain the rationale for the speed with, and degree to which, they make changes to their various savings rates”, the Financial Conduct Authority has said. The regulator has encouraged savers to consider switching accounts if they are unhappy with the service they are receiving.

Bosses of Britain’s major supermarkets are also being summoned to the Treasury to explain their pricing policies amid concern that inflation is largely being driven by food costs, with a fall in global prices not yet reflected in the shops. The Bank of England warned: “The current near-term projection for food inflation in the UK does not include any reduction in the average level of food prices, only a slowing in the rate of inflation.”

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