Commentary: Steady as she goes for interest rates

Lily Megson, Policy Director at My Pension Expert, said: “While high interest rates are often touted as good news for savers, the harsh reality is that an unchanged base rate feels like Groundhog Day for Britons.

“Indeed, the hold comes hand-in-hand with the ongoing burden of sticky inflation and the weighty cost of borrowing. For some savvy savers, there is a silver lining to continued higher rates – namely, strong returns on fixed-term products like annuities. Yet in truth, inflation has not fallen quickly enough, with millions struggling to save for long-term goals such as retirement.

“People should not be left to weather this storm alone, as the government has a critical role to play in ensuring access to independent financial advice and guidance for all. And with a general election fast approaching, it’s in their own interest to take action sooner rather than later.”

Ben Nichols, Interim Managing Director at RAW Capital Partners, said: “Cuts are coming, perhaps sooner than some might anticipate, but until there is certainty that inflation is not going to rise again the Bank of England will remain steadfast in holding the base rate where it is.

“That the base rate has remained static for nine months has afforded homebuyers and investors a degree of certainty. But higher borrowing costs will continue to squeeze house prices, and this will naturally weigh on the minds of both buyers and sellers. Moreover, it places the emphasis on how lenders and brokers can best support borrowers in this higher-rate environment.

“Flexible financial products, firm commitments, and transparent communication are all vital qualities that brokers and their clients need when looking to leverage opportunities as the economic horizon brightens. For lenders, therefore, meeting these commitments will help foster confidence among investors in the UK property market.”

Paresh Raja, CEO of Market Financial Solutions, said: “We’ve known for some time that the Bank of England would not be cutting rates today. For the past two months or so, the question has been whether the first cut will come in June or August, and then how many cuts will there be by the end of 2024.

“When the base rate falls, and how quickly, remains to be seen. But the bigger picture is that the property market has slowly but surely gone through a period of adjustment over the past two months – the reality has sunk in that rates will not get back to the low levels many borrowers had become accustomed to throughout the 2010s.

“A base rate above 4% is highly likely for the next 12 to 18 months, and the sense of inertia is steadily fading away as buyers and investors decide to re-enter the market. So, now is the time for lenders to be flexible and embrace a ‘can-do’ attitude, ensuring the right products are available to brokers and their clients in a timely manner, allowing fresh life to be breathed into the market.”

Adam Thrower, head of savings at Shawbrook, said: “The Bank of England’s wait-and-see approach is a double-edged sword for savers. While the current base rate hold sustains improved interest rates, it also fuels speculation of a future cut. This creates a window for savers, particularly those nearing retirement, to consider locking in these rates with longer-term fixed accounts. While offering slightly less flexibility than easy-access accounts, they provide guaranteed returns for a set period, which may be more attractive for those who are for income planning in the face of potential rate volatility. Of course, there are no guarantees and the unexpected can always happen, but we’ve seen an six-fold increase in savers choosing to fix their ISAs for 3-5 years, providing some indication of where consumers are hedging their bets.”

George Lagarias, Chief Economist at Mazars comments: “Today’s decision to maintain the basic interest rate at a 16-year high was a foregone conclusion. Rate cuts at some point this summer are also baked in prices. The question for consumers is not whether the BoE will cut rates this year, which is highly probable, but rather whether it is ready to enter a rate cut cycle. Multiple rate cuts might be difficult, with the US Federal Reserve maintaining cycle-peak rates for the foreseeable future, as this would risk capital flight and importing American inflation. The Bank probably knows that a lower rate is appropriate at this point. It is possibly buying time for wage inflation to come down a bit further and for the Fed to make its own intentions clearer. While rate cuts are probably on the way, businesses and consumers should not plan for multiple rate cuts right away. 

Rob Morgan, Chief Investment Analyst at Charles Stanley, comments: “As the year has progressed interest rate forecasters have had to remove their rose-tinted glasses and recognise inflation is sticky and will probably remain so. Meanwhile, interest rate cuts have been delayed as central banks await signs that price rises will decisively trend to their 2% target.”

Andy Mielczarek, CEO of Chetwood Financial, said: “Any call to race ahead of the fed and cut the base rate early would have been short-sighted. Holding at 5.25% was the right decision by the Bank of England, as there remains enough uncertainty and stickiness around inflation to merit caution for a while longer.

“The reality is that despite recent decreases in inflation, we have yet to hit the Bank’s 2% target. We are seeing signs that the economic landscape is warming, so we must ensure that we have the stability and resilience necessary for future growth.

“A high-interest environment means difficulties for those with variable mortgage payments contributing to an already-high cost of living, but these are necessary evils for the UK’s economic recovery. As long as the base rate stays high, savers need to shop around to maximise the returns they are getting from the savings market and get their financial goals back on track.”