Interest rates are set to remain at 5% until after the Government’s Budget at the end of October.
The Bank of England confirmed on Thursday (September 19) the rate would remain static, with inflation remaining stubbornly at 2.2% and above the ‘magic’ 2% target.
At its latest meeting, the bank’s Monetary Policy Committee (MPC) voted by eight to one to maintain the base rate at 5%. One member voted for a 0.25 percentage point cut, to 4.75%.
The BoE has said policy decisions were guided by a need to ‘squeeze persistent inflationary pressures out of the system’ to return inflation to the 2% target ‘in a timely manner and on a lasting basis’.
Last month, it cut the base rate for the first time since the start of Covid in March 2020, having previously held rates at 5.25% at seven consecutive MPC meetings.
It is worth pointing out that the previous long term rates of a mere 0.5% between 2009 and 2016, down to a low of 0.1% in 2020, were artificially low in the historic scheme of things – the average rate over the past 50 years is 9.1%!
Traditionally, higher interest rates are touted as ‘good news for savers’ and bad for mortgage holders.
We have pointed out for some time that leaving your savings to ‘lie fallow’ in savings accounts or Cash ISAs is generally not the best tactic to grow them.
Until recently, inflation was higher than interest rates so in fact your saved Pound was actually ‘worth less’ ie you could buy less for it than you had previously.
If you have significant savings in a Cash ISA, or worse yet, doing you absolutely no good whatsoever in a standard current account, there are other ways you can put that money to work to your benefit.
There are various options available, but it is best to seek professional advice, such as from an independent financial adviser (IFA) such as ourselves on what will work best for you.
In the longer term, something such as a Stocks and Shares ISA or Pension generally gives a better return, though of course returns cannot be guaranteed and the value will fluctuate.
But you can decide the level of risk you prefer and in any case, a wide-ranging portfolio will spread that risk. It is also typically the case that the longer you can leave that investment untouched, the better your chances of a good return.
On the mortgage front, higher interest rates of course mean higher mortgage payments and this has proved a burden for millions of home owners.
The mortgage industry, as reported by MoneyAge on Thursday, appears to be upbeat about its market going forward, saying the market is starting to ‘ramp up again’.
However, inflation was likely kept higher by the increase of the National Minimum Wage in April – with that cost passed on to consumers – and the Government has recently announced a raft of public sector pay rises. They may be well deserved for NHS staff and teachers, among others, but they will help to keep inflation higher.
It also remains to be seen what the Chancellor decides to do in her first Budget on October 30 – rumours continue to fly around regarding tax hikes and cuts to spending in other areas, but we will have to wait and see how all this will affect interest rates/inflation and the markets generally.
The next meeting of the BoE’s Monetary Policy Committee is on November 7 a week after the Budget.
