The Bank of England Inflation Report isn’t exactly light reading, so we’ve picked out the key points that could affect your finances.
The bad economic news for consumers
1. The Bank of England has slashed its economic growth predictions. In May it predicted 0.8% growth this year, but it’s now lowered expectations to zero. This is big news, even for a country that’s been in recession for four years and could have a knock-on effect on unemployment and the UK government’s borrowing requirements. Sir Mervyn warns us not to lose hope, though, saying that we just have to ‘be patient’.
2. The cost of borrowing is expected to stay high. Over the past four years consumers have faced historically high borrowing costs compared with the low Bank of England base rate. But don’t expect things to improve significantly any time soon – Sir Mervyn says it would be ‘more counterproductive than beneficial’ to cut borrowing.
3. The euro crisis isn’t over yet. There’s a risk that the crisis will continue, creating deeper uncertainty in the European economy. Sir Mervyn says, ‘This is a saga that goes on and on and on.’ For more detail on protecting your finances from any potential Euro fallout, read our guide to the Euro crisis.
The good news for consumer finances
4. Inflation is expected to be lower. The predicted 0% economic growth should put downward pressure on inflation and hopefully ease worries surrounding the cost of living experienced by UK families. But watch out – this could also lead the Bank to carry out more quantitative easing, potentially adding to further downward pressure on annuity rates.
5. The Olympics should temporarily boost the economy. Ticket sales and television rights from one of the biggest sporting events in UK history have been good news for the economy, although the fact that many people have steered clear of London could dent this boost when retail sales figures are published.
New Which? banking survey
The overall gloomy tone of the Inflation Report is compounded by negativity surrounding the UK banking industry.
Our new banking survey found that 83% of consumers think banking has worsened or stayed the same over the past year and that two thirds don’t trust the government to act in consumers’ best interests when handling banking reform. Read more about our Which? banking survey.