There is growing pressure on the Prime Minister to offer a 100 per cent guarantee on deposits to calm consumers’ fears and stop them from withdrawing their money from savings accounts and adding to economic instability.

Earlier this week, the Bank of Ireland announced that it would repay 100 per cent of savers’ deposits if their savings account provider collapsed, putting those who save with providers that fall under the Irish banking scheme, such as those with Post Office savings accounts, at an unfair advantage.

This has caused a massive exodus of UK savers who are moving their money to Irish bank accounts and National Savings and Investments accounts; it is thought that the £1.1trillion Government guarantee to safeguard 100 per cent of deposits would stem the outflow of money from UK-based savings accounts.

It has already been revealed that Gordon Brown will be announcing a new guarantee next week that will protect up to £50,000 of savings, an increase from the £35,000 that is already covered, but many think that this is not enough and more could be done to protect consumers from failing banks.

An increase in the guarantee to cover 100 per cent of deposits would reassure savers that their money was safe, therefore preventing them from moving to another bank, which can have dire consequences by adding pressure to banks that are already suffering.

There are rumours that the Treasury is considering upping the level of guarantee further, but ministers are understood to be wary of exposing the taxpayer to potential risk.

Other options for dealing with the credit crisis being considered by ministers include an emergency fund to buy banks’ bad debts, and offering additional help for mortgage lenders – lending them money so that they in turn can lend to consumers.

There is also pressure on the Bank of England‘s Monetary Policy Committee to cut interest rates when it meets next week.

A cut in interest rates would help homeowners that are struggling to pay their mortgage, and could also reassure global stock markets that affirmative action is being taken. However, there are fears that, once again, soaring inflation – currently at a 15-year high – will prevent the MPC from being able to act.

© Fair Investment Company Ltd