Interactive Investor

Interest rates held at 5.25%

The Bank of England needs to see more good data – but interest rate cut remains a question of when, and not if.

1st February 2024 12:14

Myron Jobson from interactive investor

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The Bank of England has held interest rates steady for the fourth time in a row as it seeks more progress in the fight against inflation before cutting rates. Put simply, BoE policymakers want to see more good data and avoid running the risk of unpicking hard-won progress against high inflation.

“Cuts are seemingly still inbound. It’s a question of when, and not if.

"The fact remains that we are in a high-interest rate environment, and we’re likely to stay in a high-interest rate environment for some time to come. There are no indications that we will see the return of ultra-low-interest rates that ensued after the financial crash. Any cuts to the base rate are likely to be modest compared to the substantial rise in rates since early 2022.

"High interest rates continue to have ripple effects on personal finances. As such, it remains important to keep on top of your finances and make the necessary adjustments to maintain financial resilience."

Mortgages

“It has been a mixed bag for mortgage rates in recent weeks, with many lenders making cuts, while a handful have bucked the trend by upping rates – presumably as part of efforts to allay tight margins. The latest hold on interest rates could mean more of the same – with rate reductions likely to remain the prevailing trend. Substantial falls in gilt yields, a benchmark for pricing fixed-rate mortgages, would be needed before we can expect more significant cuts in mortgage rates.

“But the recent decrease in mortgage rates only takes them back to Q1 2023 levels. Before the Fed’s rapid rate hikes, mortgage rates hadn’t hit this high of a level since 2009. Although current rates aren’t as affordable as in the past, they still represent a considerable improvement from recent levels.”

Savings

“The simple message for savers is: get a move on to nab the best deals before they’re gone. The best savings rates are seemingly on borrowed time due to the anticipation of cuts to interest rates later in the year.

“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 doesn't guarantee future results, historical trends suggest that even a 'middle-of-the-pack' fund is likely to outperform cash savings interest in the long run. You don't necessarily need to be an expert stock picker to benefit; the key is allowing your money sufficient time in the market—preferably at least five years—to mitigate the impact of market fluctuations.”

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