Why it’s dangerous to assume banks are profiteering

“IT IS taking too long for the increases in interest rates to be passed on to savers.” So said UK chancellor Jeremy Hunt this month, responding to the fact that, following the Bank of England’s (BOE) base rate hikes of recent months, banks have not increased the interest on savings accounts as fast as they have hiked mortgage rates.

His rhetoric – amplified by a veiled threat that this is “an issue that needs solving” – is understandable, laudable even, given the stress on consumers at a time of high inflation. As with the supermarkets over petrol prices, and energy companies amid the Ukraine war, it is undoubtedly good politics for the chancellor to attack banks for seeking to profiteer. But is it economically smart?

In the short term, it might be. In addition to benefiting consumers, higher savings rates would logically help achieve one of the key aims of the BOE’s rate hikes – namely to curb consumption and hence inflation.