Bank of England: cash ISA season surge, fixed rates return and business lending up
- We paid £8.5 billion into banks and building societies in March – the most since October 2022.
- This was driven by £3.2 billion flowing into cash ISAs, £2 billion paid into fixed accounts, and £1.6 billion into interest-paying easy access accounts. Meanwhile, we withdrew £0.6 billion from non-interest-bearing deposits.
- The average rate on a fixed account fell nine basis points to 4.37% and the average easy access rate was largely unchanged at 2.12%.
- Mortgage approvals for house purchases rose from 60,500 in February to 61,300 in March – the highest since September 2022.
- In March, private non-financial corporations raised £10.2 billion of finance from banks and capital markets. This was the largest amount since May 2020 and was mainly driven by £8.0 billion of net bond issuance.
The Bank of England reported on effective interest rates for March: Money and Credit – March 2024 | Bank of England
It also issued its money and credit report for March: Effective interest rates – March 2024 | Bank of England
The economy
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
‘’The onerous effect of high interest rates on the economy are showing fresh signs of easing. Lending to businesses in March surged to the highest level since the depths of the pandemic and mortgage approvals also accelerated.
This snapshot gives yet another indication that last year’s recession is behind us, and green shoots of growth should flower in the economy in the months to come.
Other data out this week also indicates that homebuyers are feeling more confident, which is likely to play out in spending elsewhere in the economy. The flow of money into savings accounts, both instant and fixed term, has also ramped up to 18-month highs, indicating that consumers want ready pools of cash to spend, or are saving for longer-term resilience.
However, with expectations for interest rate cuts now being pushed to later in the summer, or even September, it’s still not going to be completely plain sailing ahead for the economy. Some consumers will still be hampered by higher borrowing costs, which may limit their ability to spend on big ticket items and companies with high debt loads are likely to stay cautious and limit investment until interest loads lighten. When the first interest rate comes, which looks set to be in August or September, it’s likely to give an added thrust to confidence and help propel more growth.’’
Savings
Mark Hicks, head of Active Savings, Hargreaves Lansdown:
“The cash ISA season surge drove £3.2 billion into these accounts, as savers protected their cash from ever-increasing tax bills. Higher rates and frozen tax thresholds have raised fears of tax bills on savings, and shone a light on the tax-saving benefits of the cash ISA.
Meanwhile, over in the savings market, the dominance of easy access savings accounts made way for the return of the fixed rate account. The fact savers can still make 5% or more in accounts fixed for one or two years, and that rates are widely expected to fall later this year are persuading more savers that now is the time to lock their cash away and secure a guaranteed rate.
The yield curve has moved substantially in recent weeks, so rate cuts aren’t expected until the summer, and even then, there may only be two or three cuts on the way. This means we’ve seen strong fixed savings accounts stick around, so if you’re considering a fix it’s worth shopping around with smaller banks and cash savings platforms, where you can still fine some rates over 5% over one and two years.”
Mortgages
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Demand for mortgages remains impressively robust, given how rates are rising. Moneyfacts figures show that at the end of February the average 2-year fixed rate was 5.75% and by the end of March it hit 5.8%. In the intervening period it has kept climbing. These aren’t the kinds of stratospheric hikes we lived in fear of after the mini-Budget, but the relentless northward creep of rates has taken us back to the sorts of levels we saw in early January, which is putting buyers and remortgagers under pressure.
However, with sentiment at their back, this hasn’t destroyed the confidence of buyers. Optimism suffused the market in January, with buyer and seller numbers both rising, and so far it has weathered the storm of rising mortgage rates. Mortgage approvals for the coming months have risen again, reaching the kind of level that was typical before the pandemic.
Rate cuts will come eventually. They’re currently being pencilled in to start in August or even September, although June still can’t be ruled out. Two or three cuts are expected to kick in during 2024. This will finally bring lower monthly payments for those who switched to variable deals, and will mean slightly lower rates for those looking for a new fixed rate. However, it’s a far cry from earlier in the year when markets were expecting rates to have been cut already – and for anything up to five cuts during the year. It means mortgage deals may not move as far or as fast as buyers were hoping.
For those who are remortgaging it means more pain. The HL Savings & Resilience Barometer shows that one in four people with a mortgage will be at risk of falling into arrears by the end of this year, because their monthly payments consume so much of their budget. Meanwhile, ONS data shows two in five people are now finding it difficult to pay the mortgage or rent. So, while new buyers are holding firm in the face of higher mortgage rates, there’s a chance that existing homeowners are finding it an increasing struggle.
