Is number of UK savers a problem for the Bank of England?

Data published by the Bank of England (BoE) on Friday shows an interesting trend in consumers’ approach to interest rates.

The central bank’s monthly Inflation Attitudes Survey features data collected up to February 24 and therefore does not give any indication of the extent to which inflation expectations may have shifted upwards in response to the conflict in the Middle East. It does, however, highlight an interesting medium-term change in the UK economy which we would wager also applies to other parts of the world.

Exhibit 1 shows the percentage of respondents that think it would be best for them personally if interest rates went up, down or stayed the same. The total does not add up to 100% as we have excluded those who think it makes no difference or do not know whether they’d be better off with lower or higher rates.

Compared to the pre-2008 trend, there are more people today who think they’d be better off if interest rates were higher. At 27%, the number is not too different from the percentage that believes they’d be better off if rates went down (30%). The situation is markedly different than the 30 percentage-point gap that existed between the two in 2008, when a lot more people thought they would benefit from a decline in rates. These changes are likely to be the result of years of household and consumer deleveraging post-2008, accompanied by a tightening of lending standards by the banking sector as Basel III and other regulations aimed at making banks safer have taken effect. To put all this another way, it is likely the UK now has more net savers and fewer net borrowers as a percentage of the population than it did several years ago.

What does this shift mean? First, it means consumers on the whole are more resilient to shocks. All else equal, a healthier balance of savers and borrowers means the economy is better equipped to deal with the UK’s relatively weak macro outlook; the consensus for growth in 2026 is hovering around 1%, with the energy shock from the Middle East making interest rate cuts harder to justify for the BoE even as unemployment is trending upwards.

Second, monetary policy transmission might look quite different when the number of people in the economy who would like rates to be lower is the same as those who would like rates to be higher. Savers are more immune to rates going down than borrowers are to rates going up, since savers don’t tend to automatically increase consumption in response to cheaper borrowing costs. People who would be better off with lower rates, on the other hand, are more likely to be those with heftier mortgage payments as a percentage of their disposable income, and they might have to rein in consumption if rates increase. It could be argued that monetary policy is less effective in changing the outcome for the economy in this environment.

It is worth noting that the Inflation Attitudes Survey is based on very direct and short questions with predefined answers. The objective is not for respondents to think about a macro equilibrium model when answering, rather that they state their immediate preference for lower or higher rates. Simplicity is no bad thing, however, and these results mean something in the context of how effective monetary policy rates are at impacting people’s behaviour. From the BoE’s perspective, the potential implication is that keeping monetary policy rates higher than most measures of the “neutral” rate (the level that neither restricts nor stimulates economic activity) might not be as effective as it used to be for the average consumer, though we recognise that the impact on different cohorts of the population is asymmetric. In other words, perhaps UK interest rates are currently not quite as restrictive as they seem.