First the Bank of England smashed savers – now it’s ready to destroy borrowers | Personal Finance | Finance

The UK’s central bank has come in for criticism during the Tory leadership campaign, with frontrunner Liz Truss threatening to curtail its independence. Personally, I think bringing the BoE back under political control would be a disaster, but Governor Andrew Bailey has only brought it on himself.

I have criticised the Bank of England for years, after it abandoned savers in the wake of the financial crisis by slashing base rates to almost nothing in 2009.

Diligent savers who did the right thing by squirrelling money away for their future were punished for the actions of the money-grubbing banks, who got off scot free.

The BoE then made a bad situation worse, by lavishing the big banks with easy money under the Funding for Lending Scheme.

This meant they could afford to ignore savers altogether, because they no longer needed to raise cash from them to fund their lending.

Savings rates collapsed almost to nothing, and millions of elderly savers faced a dire retirement as a result.

The result can be seen in the Barclays Everyday Saver account, which continues to pay just 0.01 percent.

At the same time, cheap finance encouraged a massive borrowing spree, driving house prices to crazy levels.

It has left the country drowning in debt, and many recent homebuyers will go under as interest rates rocket.

The BoE isn’t entirely to blame. Politicians have thrown rocket fuel onto the housing market, by effectively handing first-time buyers free cash to help them get on the property ladder.

I’m thinking of schemes like Help to Buy and the Lifetime Isa, which have served to drive house prices even higher.

Now many who have stretched themselves to the max face a worrying time. The last thing they need is a housing price crash, but the danger is growing by the day.

Next week, on Thursday August 4, the Bank of England is expected to hike base rates for the sixth straight meeting in a row.

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It’s quite a feat to hammer both savers and borrowers at the same time, but the Bank of England has managed it.

This is particularly annoying since Andrew Bailey spent most of last year playing down the inflation risk, even as the warning signs flashed.

He has also proved a poor communicator, and made it far too easy for Liz Truss to bash the central bank.

Personally, I think it would be a disaster if politicians were to take charge of interest rate setting policy again.

They will only use it to further their own political ends, regularly engineering pre-election booms by slashing rates, regardless of the long-term damage they inflict.

Former Labour Chancellor Gordon Brown’s decision to free central bankers from political control was one of his better ones.

Sadly, the BoE has turned out to be just as fallible as politicians, as savers have known for years and borrowers, sadly, are about to discover.

Talk about being stuck between a rock and a hard place.