BoE set for interest rate decision

The Bank of England (BoE) is poised to announce its decision on whether to change its interest rates on Thursday 30 January.

At its last meeting ending on 18 December 2019, the BoE’s Monetary Policy Committee (MPC) voted by a majority of 7-2 to maintain the base rate at 0.75%, and this week the MPC will decide again on whether to hold rates at its current 0.75%, or cut them to 0.5%.

The decision on whether to cut the base rate, which is used by high street banks and other lenders to set borrowing costs, will have a large impact on the value of business, mortgages and loans in the personal finance space.

Commenting on the likelihood of a rate cut, AJ Bell chief investment officer, Kevin Doran, called the impending decision facing the MPC ‘finely balanced.’

“Whether the anecdotal evidence of the ‘Boris bounce’ and encouraging flash PMI data is strong enough to outdo slower retail sales and sluggish economic growth remains to be seen, but with Mark Carney likely to practically abstain in his last committee meeting, it’s hard to see enough members crossing the lobby to bring rates down this month,” Doran said.

“While some mortgage borrowers might benefit from a rate cut, we all know that banks have a poor record of passing interest rate cuts onto cash-strapped homeowners. On the other hand, long suffering savers would likely see a cut to their rates and the value of their cash further eroded by inflation, even if this has been falling over recent months.

“An interest rate cut would further enhance the yield on offer from UK shares which sits at a hefty premium to anything that can be achieved via cash or Government bonds, but much of this will already be priced into equity valuations.”

Stating what the decision could mean for the mortgage sector, Habito chief strategy officer, Martijn van der Heijden, added: “With rates being so low for so long, borrowers have benefited from cheap mortgage deals for several years.

“Any future rate change may all come down to the impact of Brexit – something that the BoE may not want to pre-empt. Instead, it's looking more likely it’ll opt for a wait and see approach this Thursday.”

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