Bank of England holds interest rates at 5.25% – is the end of the line in sight? Reaction from finance experts

bank of england

Yesterday’s shock data which showed UK CPI inflation at the lowest level for 18 months, has certainly given the Bank of England’s Monetary Policy Committee (MPC) cause to think hard about today’s interest rate decision.

With markets finding it almost impossible to call ahead of the meeting, today’s interest rate announcement has huge relevance for the UK economy, for businesses and also for millions of households whose budgets are already under considerable strain due to the ongoing cost of living crisis.

The decision to hold rates which were set from 5.25% last month will come as a welcome relief in many quarters, although the Bank has said that further tightening might be needed in the months to come.

Experts from across the financial services industry have been sharing their reaction to this latest interest rate news as follows:

 
 

Andy Mielczarek, Founder and CEO of SmartSave, says:

“Yesterday’s fall in inflation defied expectation and has released pressure on the Bank of England, allowing for its decision to hold interest rates. However, for savers, the same issue remains: there is a stark difference between the base rate and the interest rates on offer through high street banks. We are seeing too many people being penalised for their loyalty to big banks as they achieve worse returns on their savings. 
 
“Searching the market for alternative products remains vitally important, and branching out from established high-street names remains one of the best ways for people to lock in a better deal. For those in a position to put away a lump sum, there are a number of fixed-rate products currently topping the base rate that savers can make the most of to grow their money. Crucially, these are covered by the same Financial Services Compensation Scheme (FSCS) protection in the same way as traditional banks, which will offer consumers security and peace of mind.” 

Lily Megson, Policy Director at My Pension Expert, says:

 
 

“Finally, a week of good news. There is a sense that we may, at last, have turned a corner with both inflation and interest rates both swinging in favour of Britons’ finances. However, this optimistic turn isn’t necessarily prompt celebration. Inflation remains high, people are still adapting to higher interest rates, and last week’s heated discussions surrounding the future of the triple lock will all contribute to a continuing uneasiness among consumers about their financial planning, particularly for retirement. 
  
“What can we expect in the pensions market? Even though there was no base rate hike today, some pension planners may still consider annuities as the right option for their retirement fund – understandably so, given that they recently reached their highest rates in 20 years. However, it’s crucial that pension planners are not swayed by the headlines and recognise that not everyone shares the same financial objectives in retirement. Despite attractive rates, annuities may not be the golden ticket for everyone. 
  
“In fact, recent events have underscored the importance of providing support to people preparing for retirement, especially during periods of economic uncertainty, to help them navigate the complex landscape of financial planning. Ensuring the accessibility of affordable, regulated independent financial advice is essential in achieving this goal.”

Chieu Cao, CEO of Mintago, says:

“With a surprise dip in inflation, followed by the first hold in interest rates since late 2021, this week might feel like a ‘win’ for people’s finances. But the truth is that people are still demonstrably struggling at the hands of a cost-of-living crisis that is stagnating, but not really improving. 
  
“The sharp rise in interest rates over the past 20 months, coupled with sky-high inflation, has been felt in everyone’s pockets. Millions of people have seen their financial wellbeing decline. Yet still there is a tendency to see this only as a consumer issue, when really it needs to be talked in the business world too. 
  
“Business leaders and HR teams have to consider how they are supporting their employees through these challenging economic times. Have they put meaningful support in place to help their staff manage their financial lives with confidence, or overcome the pressing financial issues they are facing? Positively, more and more businesses are recognising that financial wellbeing solutions are imperative, and even with snippets of good news this week, there is no room for complacency as more must still be done.”

 
 

Clare Batchelor, mortgage operations manager at Wesleyan, says:

“While the property market is showing more resilience than expected, there are still challenges ahead. With fewer people looking to buy than we’ve seen in previous years, the restricted supply of homes coming onto the market means increased competition among buyers to secure their ideal property.

“Affordability also remains a big concern for many mortgage holders, particularly those who’ve enjoyed record low rates for much of their home ownership and are now experiencing a doubling or even tripling of their mortgage rates. This makes it even more important for people to shop around. Mortgage providers are still offering competitive rates and using a broker can help unlock the best deal in a volatile market.”

 
 

Marcus Brookes, Chief Investment Officer at Quilter Investors, says:

“While it may return to raising rates later in the year or into next year, the Bank of England has been bold and is signalling that its job is nearly done for now. Inflation surprised to the downside yesterday and with economic data rolling over, the BoE clearly feels it now has enough cover to hit the pause button and assess things as we go. Market expectations of rates at or above 6% always appeared a little toppy, and clearly the data is trending in the right direction for the BoE to take this decision. With an election around the corner next year, it will be playing on the minds of the decision makers not to overcorrect and instead begin to assess what impact the action to date has had.

“Andrew Bailey and the rest of the Monetary Policy Committee will also be looking closely at the US, where the Federal Reserve hit the pause button on interest rates. Sentiment across the pond remains hawkish though, with one more rate rise expected this year. Clearly that economy is in a much stronger position so can probably take another rate rise, but they are looking to reach the end of the hiking cycle and the Bank of England will not want to diverge too greatly from a key economic power. As such, we wouldn’t be surprised to see the BoE begin to mirror the Fed once again.

 
 

“However, while this may be the end of the interest rate hiking cycle, this doesn’t mean the pain will simply go away for businesses and consumers. The BoE has made it clear that rates will be higher for longer, so investors need to prepare accordingly. Quality companies, with stable and sustainable cashflows will ultimately benefit most from a period of rates being above 5%, and as such now is a time to hold the nerve and not try to time any cut in rates, as these are a long way off for now.”

Jonny Black, Chief Commercial and Strategy Officer at abrdn, says:

“Today’s interest rate decision breaks what has been a continuous set of rises since December 2021. However, advisers and clients are far from being out of the danger zone. Millions of homeowners are continuing to battle historically high borrowing costs. And while some savers may welcome the higher interest rates of late, advisers should still stress the importance of maintaining a long-term view when it comes to their savings and investment strategies.

 
 

“Advisers are critical to helping ensure clients are informed on the big picture and they should not make snap changes to strategy that might not be in their best lasting interests.”

Sarah Pennells, consumer finance specialist at Royal London, says:

“After consecutive interest rate rises, this is a welcome pause for borrowers.  Those on a tracker rate for their mortgage will doubtless be relieved that they will not see another rise in their repayment amounts.

 
 

“However, today’s decision by the Bank of England to leave the Base Rate at 5.25% won’t help people whose current fixed rate mortgage is near its end, as they’re likely moving off a rate that was cheaper than the new fixed rate deals available. For some, these higher repayment amounts will be unaffordable or a huge stretch on their finances.

“Although savings rates have been getting higher, with best buy easy access accounts paying over 5%, they have not kept pace with the rises in the Bank of England base rate. It’s vital that savers shop around to see whether there is a better rate available for them.”

Adam Oldfield, chief revenue officer at Phoebus Software, says:

 
 

“You have to wonder whether we are sometimes playing a game of ‘follow the leader’, as the MPC’s decision to hold interest rates comes just a day after the Fed made the same decision.  That said, it will be music to the ears of mortgage borrowers.  There have been many calls in recent months for the Bank of England to take a breath and give the current measures time to take effect.  Perhaps they are finally listening. 

“No-one expects rates to come down, at least until inflation is closer to the government’s target, but with over 500,000 fixed rate mortgages coming to an end in November, December and January (FCA), this is better news than expected. A period of calm, especially heading into the Christmas period, will be good for overall confidence.  Add this to the government’s U-turn on buy-to-let EPC upgrades and, all in all, it’s been a better week for the market. Let’s hope we see inflation continuing its downward trajectory next month.”

Sarah Coles, head of personal finance, Hargreaves Lansdown, says:

 
 

“The Bank of England has finally put the brakes on the relentless rate hiking cycle. A rise had been heavily pencilled in, but was wiped off the board by the surprise fall in inflation. Even before the announcement, the markets reacted, with implications for savers, mortgage borrowers and anyone considering an annuity.

As the market digested the news that inflation had come down, it decided a rate rise wasn’t so likely after all. As a result, bonds started to look comparatively attractive, so money flowed into them, bond prices rose, and yields fell. Yields are important here, because fixed rates tend to rise and fall with them. So this could be good news for borrowers, but less positive for savers.

However, this isn’t the full story, because the Bank of England made it clear that it’s still locked in a fight against inflation. Rates could go up again in future, and at the very least are expected to hold at this level for a significant period until inflation is under control. It means we’re not expecting seismic shifts, so there are opportunities for those who act fast, and some comfort for those who can’t.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, says:

“Annuities have enjoyed renewed fortunes over the past two years as gilt yields soared. Back in September 2021 a 65-year-old with a £100,000 pension could expect to get an income of up to £4,940 a year from their annuity. This then soared to more than £7,500 a year in the aftermath of the mini-Budget, after which incomes settled down with the same person now able to get up to £7,317. Compared to the picture just two years ago this is a huge increase that can make a material difference to someone’s retirement planning.

Today’s interest rate pause could cause long-term gilt yields to fall back and if this is the case, we may see providers opt to cut their annuity rates in the coming weeks. Despite this, annuity incomes remain substantially higher than they have for several years and should always be a factor for anyone looking for an element of guaranteed income in retirement.”

Felix Currell, Senior Consultant at XPS Investmentsays:

Following the surprise fall in inflation announced yesterday, the Bank of England today announced that base rates will not increase and instead remain at 5.25% for the time being. Prior to the inflation announcement, markets were expecting a further increase in the base rate but the recent data illustrates that inflation may be being brought back under control. The Bank of England’s decision offers hope to borrowers looking for a return to a low interest rate environment.  

“For pension schemes, longer-term gilt yields continue to remain volatile and are at similar levels to those experienced during the peak of the gilts crisis, whilst also being more than 1% higher than the lows of November 2022. However, these yield rises have occurred over a prolonged period enabling actions from pooled fund LDI managers and Trustees to take place in a much more controlled manner, supported by larger collateral buffers in line with new regulatory guidance.

There are still a number of pressure points within the UK gilt markets including increased supply (through significant extra borrowing expected by the UK government over the next few years and quantitative tightening) and a potential reduction in demand for new gilts as defined benefit schemes approach a point of having hedged most of their liabilities with existing gilt holdings. Vigilance is key for trustees to assess and implement their hedging needs in a volatile market.”

Henrietta Walker, Head of Investment Specialist Team at Brooks Macdonald, says: 

“The BoE has paused its hiking cycle, voting 5 to 4 to leave rates unchanged at 5.25%. Market expectations beforehand were on a knife edge, as August’s annual core inflation came in at 6.2%, materially below consensus estimates and a big fall from July’s 6.9% number. However, against this UK wage growth announced last week was hotter than expected, and is now running positive in inflation-adjusted terms. 

“While today’s news provides welcome respite for homeowners looking to remortgage this year, the recent sharp uptick in the oil price, up around a third since June, together with the robust real wage growth, indicates the inflation dragon is still yet to be tamed. The BoE faces the unenviable challenge of bringing inflation back down to 2% while steering the economy clear of a hard landing, against the backdrop of the steepest rate hike cycle in 30 years. 

“Yesterday, the Fed took a similar course of action, voting unanimously to hold rates steady, albeit at a 22 year high. Investors eagerly awaited the officials’ interest rate projections, often called the ‘dot plot’. These indicated a ‘hawkish pause’ with the likelihood still of another hike later this year, but fewer cuts expected next year.”

Stuart Collar-Brown, founder of My Auction and Assured Sales, says: 

“The base rate might remain unchanged for now, but there is at least one more rate rise still in the tank. Amidst all this turmoil, it’s important that we try to keep some perspective and accept current market conditions for what they are.

“When selling a property, pricing needs to be realistic if homeowners really want to sell. Some agents are valuing high to win instructions, but giving sellers unrealistic expectations as to what they might get for the property. 

“Sellers may get offers on their property which are below what they would really like, but based on what we are seeing right now, if they don’t take these offers now, in three months’ time, they could be 10% or more less.

“In the last three weeks, we have seen a huge increase in enquiries from sellers turning to auction as they urgently want to secure a sale on a property already on the market. In an uncertain market, these sellers want certainty and security that a sale will go through.”

Gavin Orpin, Partner at LCP, says:

After this week’s softer UK inflation figures, particularly a significant drop in core inflation from 6.9% to 6.2%, the Bank of England has at last decided to hold rates, after 14 consecutive rises. The decision was very finely balanced at 5-4. This seems a sensible decision given the magnitude of rises made so far and the potentially lagged impact of these on the UK economy.

“We are now entering a critical period over the next few months where we will see if UK inflation has actually been tamed. Initial market expectations are that interest rates have reached their peak. However, despite this good news for the UK consumer, the Bank of England has indicated that rates are likely to stay elevated for a decent period.”

Will Hale, CEO of Key, says:

“Today’s Bank of England announcement to keep the base rate at 5.25% is welcome news, and hopefully means we’re nearing the peak of the interest rate cycle. However, high interest rates continue to put financial pressure on mortgage borrowers who are either stuck on variable rates or who are coming to the end of fixed term deals and looking to remortgage.

“For older borrowers, some of whom are trapped on a lender’s standard variable rate (SVR), this pressure is even greater. Although we have seen some mortgage rates fall over the last month, the average SVR earlier this week was 8.09% and despite the Government Support Measures that some homeowners receive, many will face difficult decisions given the continued cost of living crisis and with limited prospect of any meaningful increase in income through their retired years.

“However, the positive news is there are always options for older borrowers to consider and as the later life lending market evolves, there is more flexibility and choice now than there has ever been when it comes to using housing equity to navigate through retirement. Rates in the equity release arena start from 6.17%, fixed for life, so now may be the right time for customers to consider whether there may be a different way to manage mortgage debt in older age.

Whether it be a lifetime mortgage or a retirement interest product, all choices come with risks as well as benefits. However, with modern equity release products now offering customers the ability to service some or all of the interest as well as having the embedded protections of a no-negative equity guarantee and surety of tenure, the combination of flexibility and safeguards can make this an option that can deliver good outcomes for a wide range of different customers.

“Speaking to a specialist financial adviser will help homeowners better understand all their options and make decisions that are appropriate for their individual circumstances.”

Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner, says: 

“The Bank of England has maintained its interest rate at 5.25%. After 14 consecutive hikes to raise the benchmark interest rate to 2007 levels, the pause is in line with the rhetoric emanating from the Bank of England Chairman, Andrew Bailey, when he mentioned that interest rates “were much nearer their peak”. GDP growth in negative territory and softening of headline inflation aided the decision, even though there was a tight split among the members. In addition to holding the interest rate, the Bank also agreed to increase quantitative tightening process from £80bln to £100bln. 

“The ONS has been reporting 4 in 10 adults finding it difficult affording their rent or mortgage payments (3 times higher delinquencies in mortgage payments in July 2023 than June 2020), coupled with a 5.3% increase in rents, which has been a direct result of higher interest rates. In addition, consumer behaviour has significantly changed in the face of mounting prices with 45% of individuals spending less on necessities, while 67% of adults spending less on non-essentials, with 50% shopping around, it is clear that the cost-of-living crisis continues apace.

“This leaves the Bank of England with a quandary – battling inflation on one hand, while trying to induce growth in the economy on the other. This requires the Bank’s Monetary Policy Committee to tread a path of fine balance, with acute scrutiny of every step the Bank takes, as it looks to avoid the probability of policy error and the adverse impact thereof.”

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