Outlook poor for expat savers says economist

by Ray Clancy on September 26, 2011

Growth prospects remain poor

Expat British savers are unlikely to see interest rates rising for some time and whatever currency they use face poor growth prospects, according to a leading UK bank.

‘Growth prospects in the UK, Eurozone and US have worsened following a series of poor economic data. This, coupled with low domestically generated inflation in those markets, makes it less likely that central banks will increase interest rates any time soon, says Trevor Williams, economist at Lloyds TSB.

‘In fact, we now forecast that the UK base interest rate will be held at its current, historically low level of 0.5% until the third quarter of 2012. In the UK, the market is becoming less focused on inflation and more pre-occupied with the prospect of weakening growth,’ he explained.

He pointed out that the UK job market, a key indicator of growth, has softened noticeably in recent months and the preferred measure of unemployment stayed at 7.9% in the three months to July, just off its highest rate in 15 years.

‘So, growth prospects remain poor and the likelihood that the base interest rate will increase remains low, although this is slightly tempered by inflation still being well above the 2% target set by the Bank of England, and forecast to reach 5% in September,’ said Williams.

The picture for savers in the Euro is not much better where struggling peripheral economies like Greece, as well as larger economies like Spain and Italy cloud the overall outlook for growth.

‘Here, we are forecasting no increase in base interest rates till August 2012 at the earliest,’ he added.

In the US, where the recovery is playing out with a dearth of new jobs, the Federal Reserve Bank has pledged to keep interest rates low for the next two years.

‘We anticipate no increases at all until the first half of 2013 at the earliest,’ said Williams.

However, in this low interest rate environment, there are still ways that expat savers can improve the returns they get, according to Tony Wilcox, managing director of Expatriate Banking at Lloyds TSB International.

‘Banking offshore gives you the flexibility to save in a variety of currencies and select the one where you get the best interest rate,’ he said.

‘And if you’re happy not to have access to a certain amount of your savings for a few years, by using a fixed term deposit account, you can often benefit from a much better interest rate. Our five year fixed term deposit, for example, currently offers 4% interest and we continuously review ways to provide better deals for customers,’ he explained.

‘Even if you need instant access to your savings, don’t presume that you’ll struggle to beat the base interest rate with your savings account as there are plenty of far better deals on the market,’ he added.

{ 1 comment… read it below or add one }

David Gallo May 8, 2012 at 9:18 pm

In the past 20 years American banks have taken many measures to ensure that they remain profitable while responding to increasingly changing market conditions.

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