Interest rates unchanged, but a future rise is not ruled out

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The Bank of England has left interest rates unchanged but has kept the possibility of a further increase alive, striking a cautious stance as the battle against inflation is far from won.

“The combination of relative economic resilience and waning inflation has given Bank of England policymakers hope that they may be able to achieve a soft landing, where inflation falls back to the 2% target without a recession.

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“The Bank of England may well be done upping the base rate, but they are unlikely to come out and say so as the path towards its 2% inflation target remains fraught with uncertainty. The Bank would want to preserve the option to raise rates further if inflation doesn’t play ball.

“Only time will tell if the run of 14 straight interest rate hikes is enough to tamp down demand and price increases. As such, it remains important to keep a keen eye on your finances and make the necessary adjustments to maintain financial resilience.”

What it means for personal finances

Mortgages

“A hold in interest rate is good news for the 2.2 million homeowners on variable rate mortgages who have been on a swashbuckling ride during the cycle of 14 consecutive interest rate hikes, which saw their monthly repayment obligations balloon. It would mean that their interest payments will remain stable, which will be a relief.

“A hold in the Bank of England’s benchmark rate could also bode well for those in market for a mortgage. Lenders have steadily reduced rates on their fixed mortgage deals since July in the wake of an improved inflation outlook. But substantial falls in gilt yields, a benchmark for pricing fixed-rate mortgages, would be needed before we can expect any significant cuts in mortgage rates. Any further fixed mortgage rate cuts could be modest for now.”

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. The withdrawal of NS&I’s market-leading one year fixed-rate savings accounts at the start of October is a good case in point.

“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, savers 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.”

Borrowing

“Common borrowing arrangements such as a personal loan or car financing won’t usually be affected by changes to interest rates because a fixed rate of interest is typically agreed before the loan is taken out. However, the rate of interest applied to credit cards and overdrafts could go up - even though they are not directly linked to the Bank of England base rate.

“Those with high levels of debt should consider what they can do now to reduce their debts as the cost of credit is rising just as the prices of everyday essentials are flying. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all your options.”