Retail banks should be passing higher interest rates on to customers, Bank of England policymakers said, but added that they should not be charged with forcing them to do so.
In a Treasury Select Committee grilling of Bank of England members, MPs highlighted that lenders including Royal Bank of Scotland (RBS), NatWest and Lloyds had all “struggled” to pass through the recent rise in interest rates to customers – having been hiked for the first time in a decade to 0.5% earlier this month.
But Ian McCafferty, an external member of the interest rate-setting Monetary Policy Committee (MPC), assured that “these things do not happen overnight”, and said it was not the responsibility of the Bank of England to ensure those changes take place.
The Bank of England increased interest rates to 0.5% from record lows of 0.25% earlier this month (PA)
He said: “It’s the role of the competitive market to determine what individual banks charge.
“And you quoted a number of banks that have not yet fully reacted. There are a number of banks – those that are usually branched in the challenger bank category – where we’re seeing a little bit more reaction.
“And I would hope and I fully expect that over time, the competitive nature of the market as far as savers are concerned would therefore lead banks who may be a little… slower to react, to have to react to that competitive pressure.”
Treasury Select Committee chairwoman and Conservative MP Nicky Morgan said she “appreciated the point about a competitive banking market” but asked MPC members to assess whether the Bank of England should be clearer in communicating to banks that it expects those appropriate changes to be made.
MPC member and deputy governor for financial stability Sir Jon Cunliffe said the committee should not be given additional responsibilities that border on micromanaging UK lenders.
He said “there may well be reasons” why there have been “lags” between interest rate hikes and retail bank rate changes in the past.
“I think what, as a member of the MPC, I care about is understanding the transmission mechanism, making sure it works.
“As a citizen I might well agree that that’s what I would expect to happen, but from an MPC point of view I think we have enough responsibility already without, if you like, pushing into those areas.”
Sir Jon said savers should be ready to change banks if they feel they are not receiving a competitive rate.
“The Government has made a lot of effort into making it easier for bank accounts to move… And say if I can get a better rate elsewhere, you know, I should do that.”
He added: “I think we want a competitive banking system where that does happen.”