THE BANK of England has opted to hold interest rates after cutting them for the first time since 2020 last month.
At the Monetary Policy Committee’s (MPC) meeting today, ratesetters at the BoE held the base rate at 5%.
The Bank of England has opted to hold interest rates at 5%[/caption]
Most economists had predicted the central bank to keep interest rates the same.
The decision to keep the base rate the same means it is at its highest level since 2008, during the global financial crisis.
The central bank cut rates from 5.25% to 5% in August, the first reduction since 2020 and a boon for squeezed borrowers.
Governor Andrew Bailey said it was able to do this because inflationary pressures had “eased enough”.
Today’s decision comes with inflation staying just above the BoE’s 2% target.
The latest data from the Office for National Statistics (ONS) reveals the Consumer Price Index (CPI) measure stood at 2.2% in the 12 months to August, the same as the month before.
Grant Fitzner, chief economist at the ONS, said it had held steady as large increases in air fares was offset by falls in the cost of fuel and prices across the hospitality sector.
The BoE raises or lowers its base rate, which dictates what interest rates are charged to banks, in order to control inflation.
By raising it, it is supposed to make the cost of borrowing more expensive and control spending, therefore driving down inflation.
The BoE started raising its base rate in December 2021 as the UK economy emerged from the coronavirus pandemic.
A succession of rate rises followed as the bank looked to slow rampant inflation brought on partly by soaring wholesale gas and electricity prices.
It has seen mortgage rates go up for millions of households – adding thousands of pounds to some bills.
But the upturn in the base rate has also seen rates on savings accounts pushed up.
With inflation slowing, economists are predicting the BoE will bring interest rates down next year
The International Monetary Fund also previously predicted that the BoE will cut its base rate to 3.5% by 2025.
In any case, here is what today’s decision means for your money.
Mortgages
Usually if rates rise it means that mortgage bills, depending on the type you have, will increase.
Those on a fixed-rate deal tend to be safe until they remortgage.
But other mortgages, such as tracker or standard variable rate (SVR) mortgages, can be impacted straight away.
Homeowners on variable-rate mortgages might not see their repayments go up straight away, but they likely increase shortly after interest rates are hiked.
The exact amount depends on your borrowing and your loan-to-value.
The BoE has today opted to freeze its base rate which means your lender will most likely make no changes to your mortgage rate.
If it does plan on making any changes, it should warn you in advance.
However, the BoE maintaining its base rate keeps pressure on mortgage holders who have been dealing with high rates for months.
Credit card and loan rates
If the base rate is hiked, the cost of borrowing through loans, credit cards and overdrafts can go up.
However, certain loans, such as personal loans or car financing, usually stay the same, as you have already agreed on a rate.
But you may be charged a higher rate on a future loan, and lenders may increase the rate on credit cards and overdrafts.
Like with mortgages, they should let you know before making any incremental changes.
With rates held, any rates you are paying on credit cards and loans are unlikely to change for now though.
Savings rates
Savers are the main group to have benefited after the consecutive rate rises.
This is because banks tend to battle it out to offer market-leading rates.
That said, banks are usually much slower to pass on higher rates to savers.
Of course, because the base rate has not changed today, banks will likely keep their rates the same too.
Anyone currently getting a low rate on easy-access savings could find it’s worth looking around for a better rate and moving their money.
Pensions
The BoE’s base rate also impacts pensioners looking to buy an annuity.
A pension annuity converts your pension pot into a guaranteed regular income for the rest of your life.
But because annuity rates are linked to the cost of Government borrowing, any rise or fall in the BoE’s base rate can have an impact on the rate you receive.
The income you receive can be locked in on the day you purchase your annuity, so current annuity rates can make a big difference to your long-term financial security.
But with interest rates unchanged, pensioners will still be able to secure favourable rates.
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