Savings rates set to fall as Nationwide makes cuts
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Your support makes all the difference.NATIONWIDE, Britain's second-largest building society, surprised its 6 million savers yesterday by cutting investment rates in a move that could trigger an across-the-board reduction for savers. These will not be matched by mortgage rate cuts.
Cheltenham & Gloucester Building Society, the sixth-largest society and one of the UK's most aggressive savings institutions, is poised to follow the Nationwide.
The move will come as an embarrassment to the Government, which earlier this week reduced the interest rate paid on National Savings investments by 0.8 of a percentage point as a concession to the building societies. The cut was designed to stop the societies raising mortgage rates by diverting savings back to them.
Instead, both societies said yesterday that they needed to cut savers' rates to widen profit margins.
The societies denied, however, that they had forced the Government's hand merely to improve their own profitability. They said they were not increasing their margins but merely restoring them to previous levels.
In a report due out on Monday from the stockbrokers UBS Phillips & Drew, C&G is expected to be rated as the strongest and most profitable of the 20 largest building societies. Last month Andrew Longhurst, the society's pounds 300,000- a-year chief executive, increased its mortgage rate. This helped to force the Government to cut the rate on the National Savings First Option Bond less than two weeks after its launch. The mortgage rate rise was reversed.
Mr Longhurst said the Government was aware building societies had been squeezed by artificially low mortgage rates, high savings rates and bad debt provisions. He said: 'The best thing we can do for investors is to make sure we are profitable and able to meet losses coming through from mortgages.'
Societies welcomed the National Savings move earlier this week, saying it relieved pressure on mortgage rates. Yesterday the Nationwide said even with lower savings rates it could not guarantee to hold the mortgage rate.
There was little government sympathy yesterday for the professed plight of the building societies. Stephen Dorrell, Financial Secretary to the Treasury, said: 'If the Nationwide says that it needs to reduce its savers' rate without reducing its mortgage rate in order to avoid an increase then that must mean it is under cost pressure and needs to widen its spread.
'That's an internal reason within their organisation which I don't have a view about.'
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