Rates Held at 5.25% as Bank of England Remains Mr Cautious

“Headline
CPI
inflation
has
continued
to
fall
back
relatively
sharply
in
part
owing
to
base
effects
and
external
effects
from
energy
and
goods
prices,”
the
Bank
said
today.

“The
restrictive
stance
of
monetary
policy
is
weighing
on
activity
in
the
real
economy,
is
leading
to
a
looser
labour
market
and
is
bearing
down
on
inflationary
pressures. Nonetheless,
key
indicators
of
inflation
persistence
remain
elevated.

“Monetary
policy
will
need
to
remain
restrictive
for
sufficiently
long
to
return
inflation
to
the
2%
target
sustainably
in
the
medium
term
in
line
with
the
MPC’s
remit.
The
Committee
has
judged
since
last
autumn
that
monetary
policy
needs
to
be
restrictive
for
an
extended
period
of
time
until
the
risk
of
inflation
becoming
embedded
above
the
2%
target
dissipates.” 

What
do
The
Experts
Say
About
a
Rate
Hold?

Henk
Potts,
Market
Strategist
at
Barclays
Private
Bank

“The
Bank
of
England
[was]
expected
to
keep
rates
at
5.25%
for
a
fifth
consecutive
meeting
on
Thursday
and
maintain
the
current
cautious
guidance.

“However,
recent
data
and
economic
projections
have
supported
the
case
for
interest
rate
cuts.
Inflation
has
moderated
and
labour
markets
are
finally
starting
to
ease.
Headline
CPI
is
expected
to
fall
below
the
central
bank’s
2%
target
level
later
in
the
year,
with
unemployment
climbing
to
4.5%
in
the
final
quarter.

“The
MPC
is
likely
to
be
laser-focused
on
the
incoming
inflation
prints,
labour
market
reports
and
growth
figures
for
the
first
quarter.
These
could
pave
the
way
for
a
pivot
to
an
easing
stance
by
the
May
meeting,
with
the
first
25bp
rate
cut
pencilled
in
for
June.
With
more
to
follow,
we
anticipate
that
the
Bank
Rate
will
finish
the
year
at
4%.”

Lily
Megson,
policy
directo, My
Pension
Expert

“Yet
another
hold
in
the
base
rate
may
feel
bittersweet
for
Britons.
On
the
one
hand,
remaining
quite
so
high
is
symptomatic
of
the
plague
that
rampant
inflation
has
inflicted
upon
people’s
finances.
On
the
other,
with
rates
likely
to
have
reached
their
peak
ahead
of
a
steady
decline
in
coming
months,
savvy
savers
might
take
their
last
chance
to
capitalise
by
investing
in
fixed-term
products
like
annuities
or
bonds.
 
“However,
it’s
important
that
consumers
don’t
make
any
rash
decisions.
This
rollercoaster
of
ups
and
downs
tells
us
one
thing:
the
current
financial
landscape
is
nothing
short
of
nightmarish
to
navigate.
It’s
important
Britons
weigh
up
their
options
and
their
individual
circumstances
when
selecting
products
that
can
pave
the
way
for
a
brighter
financial
future
–
which
ultimately
means
the
government
taking
action
in
ensuring
access
to
better
financial
education,
independent
financial
advice
and
guidance
for
all.”

Andy
Mielczarek,
chief
executive,
SmartSave

“The
Bank
of
England
has
not
bowed
to
pressure
to
cut
rates
in
recent
months,
and
it
is
likely
to
still
be
wary
of
a
potential
uptick
in
inflation
thanks
to
tax
cuts
and
minimum
wage
rising
in
the
coming
months.

“Interest
rates
will
come
down
soon
enough,
with
most
experts
anticipating
a
cut
in
June,
or
at
the
latest
August.
But
this
won’t
mean
blue
skies
all
around.
While
higher
interest
rates
remain
a
major
issue
for
debtors
and
mortgage
holders,
the
cost
of
living
is
still
untenable
for
many
households
thanks
to
slowing
wage
growth
and
prices
–
especially
for
food
–
still
rising.

“Now
is
not
the
time
to
reduce
the
base
rate;
the
risk
that
inflation
will
rise
again
is
still
too
great.
For
those
in
a
position
to
do
so,
now
is
an
opportune
moment
for
consumers
to
take
advantage
of
the
available
savings
opportunities,
as
we
should
expect
rates
to
fall
as
we
move
closer
to
the
Bank’s
eventual
decision
to
cut
the
base
rate.”

How
Would
a
Future
Interest
Rate
Cut
Affect
Me? 

As
the
above
comments
suggest,
analysts
and
comments
expect
rate
cuts
this
year.
So
what
does
that
mean
for
consumers,
and,
crucially,
those
with
savings
and
investments?

As
interest
rates
decrease,
cash
savings
rates
on
bank
accounts
and
ISAs
will
likely
decrease,
meaning
savers
may
start
getting
less
bang
for
their
buck
at
the
bank.

However,
lower
rates
will
also
make
consumer
debt
cheaper,
which
could
bring
relief
to
people
with
substantial
credit
card
debt –
and
mortgage
holders
with
variable-rate
products.
Those
who
have
remortgaged
into
fixed-rate
products
in
the
last
two
years
may
not
feel
this
until
they
remortgage
once
more.

What
Will
Equities
and
Bonds
do
if
Rates
Are
Cut?

Markets
tend
to
“price
in”
any
changes
very
quickly,
so
the
reaction
to
this
kind
of
news
will
be
swift.
Conventional
wisdom
suggests
rate
cuts
are
better
for
equities
than
bonds.
But
while
bonds
have
returned
to
favour
in
the
higher
interest
rate
era
because
of
their
tempting
yields,
rate
cuts
may
not
be
bad
for
them
either.

Falling
interest
rates
mean
lower
yields,
which
push
bond
prices
ever
higher
–
a
key
factor
in
total
returns.
And
lower
rates
make
existing
bonds,
and
particularly
those
already
issued
during
a
period
of
rate
hikes,
more
attractive
for
yield.

In
addition,
many
pension
funds,
for
whom
rising
bond
yields
have
caused
havoc,
could
also
stand
to
benefit
from
a
looser
monetary
approach.
This
may
well
benefit
the
government’s
attempts
to
reignite
the
UK’s
stagnant
economy
as
(in
theory)
it
encourages
institutional
investors
to
plough
money
into
promising
growth
businesses.

How
Will
The
Real
Economy
React?

Over
in
the
“real
economy”,
the
unwinding
of
monetary
policy
will
likely
also
benefit
shops
and
online
businesses
who
have
been
squeezed
by
the
twin
spectres
of
supply
chain
inflation
and
lower
consumer
confidence.
If
higher
interest
rates
have
the
power
to
curb
spending
in
the
UK
economy
and
cool
gross
domestic
product
growth,
lower
rates
will
in
theory
create
the
opposite
effect.

In
practice,
however,
there
is
a
lot
of
uncertainty.
While
lower
interest
rates
tend
to
stimulate
the
economy,
the
UK
is
still
expected
to
suffer
from
low
growth
in
the
coming
years
wherever
rates
end
up.
Either
way,
it
will
take
time
for
the
precise
effects
to
be
visible,
let
alone
quantifiable.

Read
more:
Bonds
Are
Attractive:
Morningstar’s
Outlook
for
2024

Read
more:
What
is
a
Bond?

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