Bank of England’s interest rate announcement: comment

by | Mar 22, 2018

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In response to the Bank of England’s decision to hold interest rates today, here’s the view of industry executives.

Ben Brettell, Senior Economist, Hargreaves Lansdown: “As expected, the Bank of England left interest rates unchanged today at 0.5%. But what wasn’t expected was two committee members breaking consensus and voting for an immediate rise to 0.75%. Ian McCafferty and Michael Saunders are worried that inaction now will mean rates will need to rise faster and further in future. Sterling jumped on the news, hitting a seven-week high against the dollar.

“The Bank faces a delicate balancing act. Inflation seems to be falling back towards the target of 2%, as the effect of the weaker pound starts to filter out of the calculation. But a pick-up in wage growth points to an erosion of slack in the labour market. This raises the prospect that a wage-price spiral could push inflation back up in future. Throw in a hefty dose of Brexit-related uncertainty and it’s easy to see why the committee is divided at present.

 

“It now looks increasingly likely we’ll see a rise to 0.75% at the Bank’s May meeting. Beyond that the outlook is less clear. As ever the Bank is at pains to point out that the pace of interest rate rises will be gradual. Much will depend on how Brexit negotiations progress, but it’s possible that further wage rises could force policymakers into a further rise this year.

Samantha Seaton, CEO of Moneyhub: “Interest rates may have held for now but it won’t be long before we see them finally creep back up. With growth in the economy stronger-than-expected, the Bank of England has confirmed at least one rate rise for 2018 to help inflation get back on target. A May rise is most likely, though this could be pushed back if inflation continues to fall.

“The UK’s 10 million homeowners may feel most wary. Research from Savills reveals that just a 1% rise would see the cost of the annual mortgage go up by £930 a year, so those with mortgages or planning to buy soon may want to consider fixing their repayments to avoid being stung by unfavourable rates.

 

“For those feeling the pinch or looking to get saving, using an app or online money tool to can make a real difference. Having a holistic financial overview makes it much easier to work out where day to day savings can be made, and receiving notifications when better rates become available for loans, utilities, and mortgages takes the stress out of switching. This means that a healthier financial future can be just around the corner.”

Ishaan Malhi, CEO of online mortgage broker Trussle: “The Bank of England may have opted to sit tight today, but it’s likely that they’ll lift rates in the next couple of months. This would impact all consumers, but particularly home owners who’ll see mortgage rates rise to their highest level in a decade. In fact, we’ve already seen many lenders increase their rates in recent months in anticipation of a rate rise. But borrowers are starting to react too. According to recent figures, the number of people remortgaging in January hit a nine-year high.

“However, today’s focus on interest rates really only highlights half the story when it comes to mortgages. As lenders change the rates of their deals, many will change the attached fees and incentives too. It’s important to take the total true cost into account, since a higher-rate deal can actually be cheaper overall than a low-rate deal. For example, choosing the lowest rate mortgage deal with one of the Big Six lenders would actually cost the average homeowner £400 more than if they were to choose the lender’s lowest true cost deal. Comparing deals this way isn’t as straightforward as it should be, so it’s worth seeking advice from a broker to make sure you’re making the right choice.”

 

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