Following the news today that the Bank of England has kept UK interest rates on hold at 5%, Laura Suter, director of personal finance at AJ Bell, has shared her analysis and comments with us on this latest Bank of England interest rate decision as follows:
“The Bank of England has voted to hold interest rates for the next two months, with eight members opting to keep rates at 5%, and just one voting to reduce them to 4.75%. Holding rates was widely expected ahead of the rate decision, with no huge shift in economic data since the last vote. The next decision by the Bank will be taken in November, with all eyes on a potential rate cut at that time.
“The fact that the MPC skips a meeting in October means that it side-steps having to make a decision just ahead of Labour’s first Budget. It gives the Bank time to digest the government’s fiscal plans and their impact on the economy before making its next decision at the start of November.
“Regardless, interest rates are still expected to end the year at 4.5% – signaling two successive cuts before Christmas. That would be the best present that wannabe homeowners could get, with a mortgage rates war already hotting up. However, today’s interest rate hold might mean that some buyers wait for further interest rate cuts later this year before starting their house buying journey.
“Despite the pause in rate cutting, we’re still seeing interest rates drop on both mortgages and savings. There has been a flurry of interest rate cuts to mortgages in the past few weeks, as banks and building societies have pushed out new deals for homeowners. But at the same time savers have been hit with cuts to rates since the August MPC meeting. As the Bank continues to cut rates we’ll see savings rates drop further, with savers getting reduced returns on their cash. Anyone wanting to maximise their return on cash savings needs to shop around for the best deal, rather than leaving the money sitting in an old savings or current account earning little or nothing. The faster savers move the more likely they are to lock in a decent rate. If 2024 goes down as the year of peak cash savings rates, 2025 is going to deliver far more muted returns for savers.
“The Bank has also decided to continue its pace for selling off UK Government bond holdings, sticking to selling £100bn of bonds over the next 12 months. This will have an impact on the profile of government debt over the coming years, because as the Bank of England sells bonds back to the market, it incurs losses on those sales that the Treasury needs to shoulder.
“If it had opted to accelerate its bond sales, it would mean bringing forward those losses, which in turn puts more pressure on the public finances in the short term and makes it more difficult for the chancellor to balance the books. Equally, if the Bank had opted to cut back on its bond sales, it would push more of those losses into the long grass and free up more money now for the Government to play with. It has instead opted for the more politically-neutral option of maintaining sales where they are.
“Regardless of this decision, Chancellor Rachel Reeves may seek to redefine the debt target to exclude losses from the Bank of England, which would serve to free up some much-needed money and could help avoid drastic cuts to spending or tax hikes.”
