Some comment and analysis on today’s UK interest rate announcement from the MPC;
IEA
Julian Jessop, Economics Fellow at the free market think tank, the Institute of Economic Affairs, said:
“The Bank of England’s Monetary Policy Committee may have left interest rates on hold this week, but this is still a turning point. Indeed, one member of the MPC voted for a cut. Swati Dhingra’s points about the lags in monetary policy – and the risks that monetary policy is left too tight for too long – echo warnings from the Shadow Monetary Policy Committee that meets at the IEA.
“The Bank has at least acknowledged that inflation is on track for the two per cent target in the spring and that the risks thereafter are more balanced, so it is even less likely that rates will be raised again. But the consensus on the MPC is still that policy will have to remain ‘restrictive’ for a while yet, so the first cut will probably not come until May, alongside the next set of Bank forecasts. Hopefully, this will be a case of better late than never.”
WEALTH CLUB
Nicholas Hyett, Investment Manager at Wealth Club, commented;
“Before Christmas investors had built up a picture of central bankers as trigger happy rate cutters, just waiting for the first excuse to get rates falling once again. Stock markets shot up as a result, and mortgage rates have started to fall.
Well, there’s little evidence central bankers are rate cut hungry in today’s MPC report. Rates were unchanged as expected, but two MPC members voted to increase rates – arguing that monetary policy need to be restrictive for longer to get core inflation back under control.
There’s a certain logic to that. The economy isn’t glowing. But it’s not screaming in distress either. Growth is ping-ponging around zero, and wage growth is slowing but still moving upwards and rising energy prices could yet move inflation higher again later in the year. But monetary policy is a supertanker not a speedboat – leave a change of direction too late and the economy will hit the rocks before central bankers can get it to slow.”
MY PENSION EXPERT
Lily Megson, Policy Director at My Pension Expert, said: “Maintaining base rates is not an unexpected decision – perhaps inevitable given the sticky inflation of previous months. However, it offers no clear answers for those who have felt trapped in financial limbo for the past year.
“It’s impossible to say exactly when the battle between inflation and interest rates will end. However, more can and should be done to ensure those who are still struggling to plan for the future have access to adequate support.
“It’s therefore vital that the government takes affirmative action to ensure all Britons are able to access guidance and independent financial advice. These tools will empower Britons to make informed decisions, navigate the changing economic climate, and achieve a brighter financial future.”
SMARTSAVE
Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said: “The question since late 2023 has not been if the base rate will fall, but when. Inflation has been brought under control, but not fully stamped out – the Bank of England is clearly not ready to loosen its high-interest-rate position just yet, but the expectation is that multiple cuts to the base rate will come between now and the end of the year.
“It’s important to remember that the interest rate remaining static does not mean savings products will do the same – fluctuating swap rates and the future actions of the ECB and the Fed will precipitate lower returns on Britons’ saving pots, which will leave savers assessing their options in the coming weeks.
“As seen with last month’s surprise increase, the fight to bring inflation back down is far from over, leaving UK households compelled to contend with the challenge of interest rates for a little while longer. But this latest base rate announcement comes days after many households received their first pay package with reduced NI contributions, meaning more money in the pocket and an incentive to take advantage of the inflation-beating saving opportunities on the market.”
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