Up to 21 million over 50s are worse off as a result of the Bank of England’s efforts to stimulate the economy, a recent report warns.
A “toxic combination” of rising prices and historically low interest rates intended to generate growth have hit pensioners and those nearing retirement harder than other groups in society, it concludes.
As a result many have been forced to rein in their own spending on all but essentials, depriving the economy of an estimated £25 billion and helping tip the country back into recession, it claims.
The report carried out by analysts at the Centre for Economics and Business Research (CEBR) for Saga blames the Bank’s policy of Quantitative Easing (QE) for the squeeze on older people and calls for a new approach.
It argues that the policy – similar to printing more money – has pushed down income from savings and pensions while simultaneously creating inflation.
Meanwhile lower interest rates during the recession have benefited younger people with bigger mortgages but hurt older people living off income from savings.
But last night the Bank dismissed the conclusions as “nonsense” and insisted that its actions had boosted the economy and protected jobs.
The report calculates that people in their 50s and early 60s have seen their real income – their income stripping out the effects of inflation – fall by nine per cent in the past four years.
Those aged 65 to 74 have been hit even harder, with an 11 per cent drop in their income since before the financial crisis, it finds.
At the same time, the report calculates that inflation has hit older people harder than younger people because mortgage payments represent a smaller part of their outgoings.
When mortgage differences are taken into account the cost of living for retired people is now 20 per cent higher than four years ago, compared with only 13 per cent for the under 30s.
Overall it concludes that the over 50s would be 1.5 per cent better off had it not been for QE. There are 21 million people aged over 50 in Britain.
Dr Ros Altmann, Director General of Saga said the economy was still “flatlining” despite the Banks’s efforts.
“It is, therefore, important to seriously consider whether part of the reason for this ongoing economic weakness is the impact of monetary policy itself,” she said.
She added: “The Bank of England has scored an unexpected own goal with the effect of its policies on the over 50s.
“This age group represents more than half of UK households and contributes nearly half of all domestic consumption but the toxic combination of rock-bottom interest rates, spiralling inflation and QE money-printing has put a big squeeze on their incomes, forcing many to make cutbacks.
“This change in spending habits has not just hit their living standards it has also sucked almost £25 billion out of the economy, reduced the Treasury’s tax take and may have inadvertently helped tip us into recession.”
A spokesman for the Bank of England said: “QE has boosted the economy and employment while reducing the risk of deflation.
“It is nonsense to suggest that QE could have pushed up inflation and damaged growth at the same time.”
Source: The Telegraph