Industry reacts to BoE decision to maintain bank rate

The Bank of England (BoE) has announced its Monetary Policy Committee (MPC) has chosen to maintain the UK’s bank rate at 0.75%.

Following widespread speculation that the rate could be cut to 0.5%, the BoE revealed that after its meeting on 29 January, the MPC had voted by a majority of 7-2 to maintain the rate at 0.75%.

MoneyAge has rounded up some of the immediate reaction to the decision and its implications across the financial services sector.

Savings

Hargreaves Lansdown personal finance analyst, Sarah Coles, said: “Despite heavy hints that rates would be cut today, a handful of more positive signs for the economy persuaded the BoE to keep rates on hold.

“But this doesn’t mean savers should breathe a sigh of relief and stay put, because banks have been trimming their rates already. Over the last six months, they’ve become more convinced the BoE will keep rates low for years, so they’ve cut rates across the board. While it’s impossible to predict what will happen next for interest rates, significant rises would come as a real surprise.

“The vast majority of our savings is in easy access branch accounts with high street giants, typically offering 0.25%. By moving to a newer online bank you can earn more than five times as much on an easy access account – up to 1.35%. If you switch to an easy access cash ISA you can currently earn 1.36%.

“Everyone should have 3-6 months’ worth of expenses in an easy access account, but after that it’s worth considering fixing chunks of your savings for longer in return for more interest.”

Savings Champion co-founder, Anna Bowes, added: “We think this was the right decision, although savers are already suffering and have been for years. To have cut interest rates today would have seen providers add to the already shocking number of rate cuts that have happened over the last year and a half, even though the base rate has remained at 0.75%.

“Since August 2018 – when the base rate was increased to 0.75% – there have been over 1,000 cuts to existing variable savings accounts. Unfortunately, today's reprieve is unlikely to keep savers immune from further cuts to their savings accounts.

“Savers need to take matters into their own hands and find the very best rates available to earn as much interest as they can on their hard-earned savings. Leaving money to languish in a high street bank is the worst thing you can do, as they pay some of the worst rates available.”

Investor confidence

HYCM chief currency analyst, Giles Coghlan, commented: “Today’s announcement shows the BoE is erring on the side of caution – while the UK economy is in a stable position, there are still many unknowns on the horizon which could drastically impact investors, businesses and consumers. Brexit, of course, is chief among them.

“Ultimately, the current low interest rate environment means investors must look beyond traditional savings accounts to deliver competitive returns. Rising inflation means that money in saving accounts will only depreciate in value over time.

“That’s why, I believe the decision to leave interest rates below 1% will only encourage more people to look to other investment markets over the coming months in the search for more significant returns.”

Market Financial Solutions CEO, Paresh Raja, added: “The BoE treads carefully when deciding on the interest rate, so the fact they’ve decided to leave it at 0.75% is an important decision. Investor confidence is returning, and we are likely to see the markets post a modest performance in the aftermath of this announcement.

“Low interest rates work to the advantage of borrowers. I expect many lenders to review their rates and consider further cuts to ensure they have an edge of their competitors. To minimise their risk exposure, banks are tightening their lending criteria, making it more difficult for investors and businesses to access finance they need to buy a property.

“Overall, I’ll be interested to see how this rate cut affects the property market, and whether the Bank will consider further rate hikes over the coming months depending on how Brexit plays out.”

Economy growth

Experience Invest director, Jerald Solis, commented: “In normal circumstances, interest rates being put on hold isn’t exactly a newsworthy event. Today’s announcement is different, however. It shows the BoE is cautiously optimistic about the future growth prospects of the economy, even with Brexit on the horizon.

“Yet with interest rates still below 1%, investors and savers will be looking at ways of making their money work harder. Indeed, amidst the continuation of low interest rates, last year a survey by Experience Invest found that 59% of property investors said they were actively seeking ways to make greater returns on their investments. This looks likely to remain the case for the coming months at least.

“With interest rates hovering below 1% for over a decade now, the question on everybody’s minds is how long it will be before the BoE is prepared to increase the rate of interest to a whole percentage.”

The pound

CEO of deVere Group, Nigel Green, said: “The announcement has caused the pound to strengthen and FTSE 100, the UK’s leading stock index, to take a mild hit because of the translation effect of a stronger sterling on overseas earnings. However, within 24 hours of the BoE’s announcement, any market impact will likely be forgotten. As such, investors should sit tight.

“The BoE is waiting for the Budget in March. The Chancellor, Sajid Javid, is promising an ‘infrastructure revolution’ – which will take years to heat up the economy as spending on that is slow to come through. But there could be more immediate fiscal sweeties, leading to inflation fears, such as tax cuts and increased current spending on public services, including health, defence and police.

“An expansionary fiscal policy carries with it greater uncertainty over inflation and growth. The BoE will want to keep their powder dry to address this. For investors, and particularly those interested in sterling, it will be the BoE’s response to a potentially expansionary fiscal policy that is the story of 2020. And for this, they have to sit tight until March.”

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