Base rate hits 3% in biggest hike for decades

Following the Bank of England’s decision to raise the base interest rate by 75bps, here are some thoughts from experts in theiri field.

Impact on pension planners:

 
Andrew Megson, CEO of My Pension Expert, said: “The past week has seen market turbulence calm somewhat, following the appointment of Rishi Sunak as Prime Minister. But the BoE’s decision to hike interest rates to 3% is a stark reminder that the UK’s economic health remains fragile.

“For pension planners, this means prolonged uncertainty for their financial future. Almost two fifths (37%) of UK adults aged 50 and over believe that the cost of living has made retirement impossible for the foreseeable future, according to My Pension Expert’s research. And whilst many will look to the Sunak-Hunt political partnership to bring a sense of calm and clarity, it is clear further challenges lie ahead.

“People are desperate for reassurance. As such, it is vital that more is done to ensure Britons have access to independent financial advice. The government must prioritise working with the financial services sector to ensure savers know where to go for advice, and how it might improve their situation. Doing so will help savers regain some financial confidence in the face of such economic volatility.”
 

Businesses must do more to support staff:

 
Chieu Cao, CEO of Mintago, said: “The fact that today’s interest rate decision comes in the midst of Pension Awareness Week should not be understated. In the current climate of raging inflation, driven largely by the swelling costs of food and energy, saving money has become more and more of a challenge. It’s unlikely that all savings accounts will reflect the changes to the base rate, and those with debts, particularly mortgages, will have seen their repayments increase dramatically in recent months. Make no mistake, this will be harming the financial wellbeing of many people. It also makes long-term financial planning, particularly with major decisions like pensions, far more difficult.

“As such, it’s more important than ever that people are given the tools they need to navigate an increasingly bleak economic landscape. This needs to be done in the workplace, where not enough support is being provided. Indeed, the cost-of-living crisis has created the biggest drop in living standards for over 50 years, but just 39% of businesses in the UK have a clear strategy in place for how they will help their staff this winter, according to Mintago’s research.

“By providing better financial wellbeing support systems – whether that’s connecting staff with advisers or implementing a platform that allows them to manage their money more effectively – employers could alleviate a lot of the financial stress that many people are facing by simply giving them a clearer view of their finances. With this in mind, they must also ensure that people are thinking about their long-term financial security, despite the short-term difficulties they might be experiencing.”
 

Impact on the  property market:

Jatin Ondhia, CEO of Shojin: “There’s no longer any great shock in the Bank of England’s course of action, but we must prepare for the after-effects. Most obviously, while the signs suggested that the property market was already feeling the effects of rising interest rates, this latest, more significant jump, will certainly have an impact.

“As the cost of borrowing climbs sharply, people’s chances of getting onto or moving up the property ladder will diminish, while traditional property investments, like buy-to-lets, will likely become less attractive. We could see people pursue alternate forms of real estate investment, including fractional investment into developments.

“I would expect investors to consider the assets and markets they are backing right now, with diversification a logical route for many during times of high inflation and rising interest rates. Alternative investments could become more popular, with investors potentially seeking to balance higher-risk options that could better keep pace with inflation at the same time as still gravitating towards safe haven assets.”
 

Businesses can’t offload rising costs onto consumers:

 
Mohsin Rashid, Co-founder of ZIPZERO, said: “The hikes are getting bigger. This is the single largest rise in interest rates since October 1989 and it will have devastating consequences for both consumers and businesses alike. Millions of consumers with debt such as mortgages, credit cards, and personal loans are going to see their finances stretched to breaking point; the Financial Conduct Authority has suggested that more than 100,000 are at risk of losing their homes next year. Meanwhile, the glimmer of certainty consumers once had thanks to the promised two-year energy price cap has evaporated faster than the Truss government. Likewise, businesses face higher borrowing costs, limiting investment, and a consumer base which is tightening its belt.

“Given such a testing economic climate, businesses must be wary of simply increasing prices and placing yet more strain on consumers. Rather, they must identify strategies that lower costs and drive sales while ensuring products remain affordable.

“There’s a clear solution. Brands and retailers spend a collective £27 billion per year on digital advertising via Big Tech. Herein lies a unique opportunity to use alternate marketing and customer engagement methods, which will divert this huge sum back into the pockets of consumers through cash rewards while allowing businesses to directly reach their intended audience and sales targets. The goals of businesses and consumers are not divergent. In times of crisis, the two must come together to ensure the other’s survival – creative redistribution will be key to achieving this.”