- Bank of England holds rates at 3.75%, voted by a majority of 8–1
- MPC cites war in Iran, and likely impact on inflation and growth
- Gilt yields have fallen on the news but volatility in the gilt market expected to continue
- Despite anaemic outlook for UK, a recession is unlikely
- Savings rates are competitive, with challenger banks leading the way
- Annuity income remains robust but don’t make a hasty decision on providers
The Bank of England has released the minutes from the Monetary Policy Committee.
What it means for the economy and markets
Emma Wall , Chief Investment Strategist, Hargreaves Lansdown:
“The Bank of England’s decision to hold rates today at 3.75% is very much as the market expected. Only the Bank’s economist Huw Pill voted to raise rates, against 8 other members who voted to hold. The Bank has also released scenario analysis related to the war in Iran, and the effect on inflation and economic growth. Their most likely scenario recognises that the conflict has impacted prices and would continue to do so, but that for now it was sufficient to monitor markets rather than act on rates. Gilt yields have fallen on the news. Markets were concerned that the vote would be more divided, and that the forward guidance starker.
Our house view is that the rate is held whilst the conflict is active, and the
Strait of Hormuz restricted. However, we recognise that there’s significant continued uncertainty and that volatility in the gilt market is expected to continue. We think, unlike in 2022, the weaker jobs market constrains the likelihood of wage inflation. But the Bank of England is unlikely to cut base rate until later in the cycle. We additionally think a domestic recession is unlikely, though note that the outlook for UK growth is anaemic, and recently downgraded by the IMF, which will impact consumer confidence.”
What it means for savings
Clare Stinton , senior personal finance analyst, Hargreaves Lansdown:
“The savings environment remains attractive. Those looking to make their money work harder can access inflation-beating interest rates, with easy access Cash ISAs paying around 4-4.5% and fixed rate deals offering above 4.5%. There are also some short-term fixes of around six months on the market, offering savers a balance between returns and flexibility. If you’re looking to secure a longer-term fix, only commit money you can comfortably set aside and won’t need soon. A sensible approach can be to split your savings, locking away a portion to secure higher rates, while keeping some funds easily accessible for life’s unexpected twists and turns. Challenger banks are to thank for pushing rates higher, but there remains a big spread between the top and bottom paying accounts as providers wait to see if rates will fall or rise next. So, it pays to shop around for the best rate, rather than defaulting to your high street bank. If you already have existing savings, it’s worth checking the rate you’re getting is competitive. Tucking cash savings into a Cash ISA will shield your returns from income tax today and in the long run.”
What it means for annuities
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“Rising interest rates in recent years have transformed the fortunes of the annuity market with incomes soaring. They’ve remained robust even as interest rates tracked down, and today’s hold should mean this continues. The latest data from HL’s annuity search engine show a 65-year-old with a £100,000 pension can get an income of up to £7,832 per year from a single life level annuity with a five-year guarantee, so people on the lookout for an element of guaranteed income can continue to get good value from the market. It’s important to do your research first though as once bought an annuity cannot be unwound. Different providers offer different rates so making a hasty decision could be something you regret. Taking the time to gather rates from different providers using an annuity search engine is a great way of making sure you get the best annuity for you.”
