A pause before an inevitable interest rate rise?

interactive investor experts comment on interest rates being held at 0.1%.

• In a poll of 3,108 interactive investor website visitors, conducted 15-18 October, 86% said they expect interest rates to rise in the next 12 months.
• 44% stated it would benefit them personally, most likely because it could result in increased savings rates (while 74% of mortgage holders in the UK are on fixed-rate deals, according to UK Finance).

Commenting, Becky O’Connor, Head of Pensions & Savings, interactive investor, says: “This feels merely like a pause before an inevitable base rate rise following the chancellor’s remarks in the Budget about the Bank of England’s responsibility to keep inflation in check. 

“People with money in savings accounts, including many retirees, are growing impatient and desperate, in the face of rising inflation, for some small crumb of comfort that the tables are going to turn slightly in their favour. At present, many people are unfortunately watching their life savings being eroded by inflation and feel unable to do much about this. Investing can boost growth prospects over cash savings over a number of years. Retirees who are not confident investors have the option of Investment Pathways to help them once they start accessing their pension pot.”

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “The much-touted rise in interest rates to keep a lid on inflationary pressures failed to materialise, piling on further misery on savers who have had little shout amid the ultra-low interest rates spanning over a decade.

“BoE policymakers appear split about how long the uptick in inflation will persist. Whatever the future might hold for interest rates, savers should get back into the habit of shopping around for the best savings deal. The prevailing savings rate of a paltry 0.01% on easy access accounts should be incentive enough to actively seek out a better deal.

“The decision to maintain interest rates at current levels will come as a relief for those 850,000 mortgage holders who are on tracker deals – at a time where household budgets are being squeezed, with inflation pushing up the cost of essentials and rising energy prices intensifying the financial pinch. Who knows what the future has in store for interest rates – the prospect of negative rates appeared to be likely route  not so long ago. A fixed rate deal remains the ultimate insurance policy against hikes and therefore gives peace of mind.”

Victoria Scholar, Head of Investment, interactive investor, says: “It was a surprisingly dovish split in today’s rate decision. The Bank of England has voted to keep its benchmark rate on hold at 0.1%, postponing the first interest rate hike since August 2018 and delaying lift-off since a raft of monetary stimulus measures were brought in at the start of the pandemic. The monetary policy committee voted 7-2 in favour of a hold, a more accommodative vote than analysts were expecting. Clearly the central bank wants to wait for further data to come through on the labour market rather than bringing about any economic strain through hawkish policy in its combat against inflation. GBP/USD has broken below $1.36, extending its recent declines, while the FTSE 100 is enjoying a bullish breakout, lifting off support at 7,250 and heading back up towards the next resistance at 7,280.”