Bank of England holds rates at 5.25% again

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “While the base rate remains unchanged again, many households are still struggling to keep on top of the financial fallout from the run of 14 consecutive interest rate rises that stretched back to December 2021. The uptick in mortgage rates, rents, and the cost of consumer credit more broadly have thrown many finely tuned budgets out of kilter.

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“The prevailing sentiment among market analysts is it is not a case of 'if' the Bank of England will cut interest rates, but 'when'. Serious cracks in the UK economy are starting to show, with gross domestic product (GDP) falling more than expected in October to around 0.3%. This, along with the easing of inflation, could suggest that interest rates don’t need to go higher to slam the brakes on the economy even more – but this is not a foregone conclusion.  

“The BoE base rate acts as a lever on the cost of consumer credit. A high interest rate environment makes taking prudent steps to maintain financial resilience all the more important.

Mortgages

“Recent mortgage approval figures suggest that there is a sizeable cohort of prospective buyers and homeowners approaching the end of their fixed-rate mortgage deal who are holding off on securing a home loan until they become cheaper. Major lenders have cut mortgages rates in recent weeks on amid market expectations central interest rates will fall faster than expected in the new year.

“Prospective homeowners will be looking to buy when both house prices and mortgage rates reach their lowest point, but the reality is no one short of a functioning crystal ball will know exactly when this will be.”

Savers 

“Those who have been waiting to nab a top savings deal might want to get a move on as the very best deals may not be around for much longer. As things are moving so quickly there’s a risk that, by delaying taking out a savings deal now – especially a fixed-term deal - you could miss out on a higher rate in the next week.  

“One solution is to adopt the ‘laddering’ or ‘staircase’ savings strategy, which involves gradually increasing the amount you save overtime. This involves savers putting their cash in fixed-rate accounts over the long term with different maturities, thus bridging the waiting period for higher interest rates.

“Those who can afford to put money away for at least five years or more should consider investing for the potential of long-term inflation-beating returns that far outstrip savings rates.

“While past performance is not indicative of future results, saver can take courage in the fact that history shows that even a ‘middle of the pack’ fund is likely to outperform returns from cash savings interest over the long term - so, you don’t need to be an expert stock picker to benefit. The key is to give your money ample time in the market – at least five years - to smooth out the effects stock market ups and downs.”