Interest rates on hold at 5.25% – reactions

The Bank of England has held interest rates for the third time in a row; the rate remains at 5.25%, the highest in 15 years.

Six members of the nine-person Monetary Policy Committee – which makes the decision – voted for no change, the other three wanted an increase to 5.5%

Higher interest rates are intended to lower inflation, by reducing people’s spending power; bank governor Andrew Bailey says ‘we’ve come a long way’ in bringing down inflation this year, but there is ‘still some way to go’.
 
Here are some comments from money markets and beyond:
 
Jatin Ondhia, CEO of Shojin, said: “The Bank of England is walking a tightrope. Understandably, it is unwilling to loosen its grip on inflation by dropping rates any time soon. But it also has to be careful not to inflict excessive damage on the UK’s contracting economy. It’s an unenvious task, but we should welcome the fact that the base rate is likely to hold at 5.25% in the short-to-medium-term – it means people can finally make financial plans with a degree of certainty, and the timing couldn’t be better.

“The New Year always brings about a renewed focus on finances as people set their investing, saving and spending goals. Higher interest rates are likely to lead more people towards the wide array of ISA products available, but diversification will be another key trend to watch in 2024, with real estate a perennially popular asset. Diversifying one’s savings and investments can help hedge against economic volatility, and as the Bank of England continues along the tightrope, preparing for potential volatility next year will be on many people’s agenda over the coming months.”
 
Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said: “We have entered a period of stability where interest rates are concerned, but there is no room for complacency as people consider their financial plans for 2024.

“For the first time in 15 years, the base rate is residing above inflation, and savers must consider how they can take advantage of this shift. Crucially, we must remember that a higher base rate is not a guarantee of greater returns on saving pots, with many banks and many savings products – easy-access accounts in particular – still offering returns that do not even match the 5.25% base rate, let alone better it.

“So, whether savers consider switching products, providers, or both, it is up to consumers to assess their options and seek out the best returns possible.”
 
Lily Megson, Policy Director at My Pension Expert said: “The Bank of England’s cautious stance is unlikely to feel like Christmas-come-early for Britons. Holding the base rate might provide some respite after a great deal of turbulence, but it will do little to restore consumer confidence.

“Those in or near retirement have been some of the hardest hit by the cost of living. Thousands have returned to work or are delaying their retirement to top up savings that have withered away in real terms due to sky-high inflation. The question is how they can now benefit from a higher, stable base rate, particularly as inflation has fallen.

“It is a delicate balancing act. Pension planners must consider how to effectively prepare financially for retirement – and this will involve considering an array of options, from annuities to flexible access drawdowns. But no one has to make these decisions alone. More should be done by the government to highlight the value of independent financial advice, which can help people make informed decisions based on their own needs and circumstances – and more importantly, help people understand where they can access it. As the economy stabilises and we prepare for the New Year, now is an opportune moment to invest in thorough financial planning.”
 
Mohsin Rashid, CEO of ZIPZERO, said: “Pockets across the country remain pinched. Holding the base rate steady will certainly save many Britons from another punch to the gut, but it won’t repair the damage of the many blows that have come before.

“With their financial wellbeing eroded by years of fiscal chaos, much more must be done to support those still struggling under the twin burdens of high interest rates and high inflation. Whether it means relief packages from the Government or retailers doing more to keep prices fair and manageable – ideally a mixture of both – what matters most is that it happens now.”
 
Ben Thompson, Deputy CEO at Mortgage Advice Bureau said:

“The Bank of England (BoE) deciding to hold rates for a third consecutive month brings relief to homeowners with mortgage deals expiring soon, and prospective buyers looking to get onto the property ladder. With more than a quarter (27%) of future homeowners citing higher interest rates as a barrier to their homebuying plans, today’s hold should be a welcome sign that we’ve now reached the peak.

“As we look at what this might mean for 2024, we expect the market to perform at a similar level to how it is now. It should then start to gather a little momentum as we head towards summer, and we may even just see a small cut in the bank base rate on the horizon too.”

“Until then, the mortgage market has already seen drops in the swap rates used to calculate mortgage prices, and there is hope that today’s third consecutive pause might mean more reductions. However, those with mortgage deals about to expire should still err on the side of caution and look to act now, as it could be more beneficial in the long run. If in any doubt, always speak to a mortgage broker for advice.”