Bank of England uses UK property obsession to defend low rates


Bank of England monetary policy committee member Gertjan Vlieghe has hit back at criticism that low interest rates are hitting savers, arguing that most UK wealth is held in property rather than bank deposits.

Half of the UK household’s net wealth, which totals £10trn, is in property, Vlieghe said at Sheffield University on Monday evening.

Only £1.5trn was in deposits, while the remainder was in other financial assets.

The Bank of England cut already record-low interest rates to 0.25 per cent at its August meeting in response to the UK’s vote to leave the European Union.

Prime Minister Theresa May has previously said that low interest rates, alongside quantitative easing, comes with bad side effects – namely inequality.

Vlieghe said monetary policy was always redistributive.

But to say that some groups are affected differently by monetary policy than others is quite different from arguing that some groups suffer outright from monetary stimulus.

“Once the effect of an improved economy on savers is taken into account, it seems to me that most savers benefit from monetary stimulus.”

Vlieghe added that most savers are also employed and that low interest rates combined with asset purchases have helped lower unemployment by boosting nominal aggregate demand.