15th September 2016
The Monetary Policy Committee of the Bank of England has maintained interest rates at 0.25%. Four experts give their verdict on what it means for your money and the economy.
Homeowners yet to feel relief on interest rate payments
Ishaan Malhi, founder and CEO of online mortgage adviser Trussle
“Having cut the base rate to a historic low last month it was always doubtful we’d see a further reduction today, but despite the Bank of England’s decisive action, thousands of homeowners across the UK are still yet to feel any relief on their mortgage payments. At least two mortgage lenders have ruled out passing on the rate cut to their borrowers through a reduction to their standard variable rates (SVRs), with a further five including NatWest, Halifax and Scottish Widows, refusing to do so until at least October.
“The BoE hopes to lighten the load of consumer debt in an effort to boost spending, so it’s distressing that so many borrowers are yet to see any change to their mortgage payments. The average homeowner is already losing out on £2,844 a year by not switching to a better rate mortgage at the end of a fixed period. That’s some £22 billion each year across the country, and this number will continue to grow if lenders refuse to pass these saving on to borrowers.”
Savers should not expect a bounce back any time soon.
Calum Bennie, savings expert at Scottish Friendly
“Despite the Brexit bounce the economy appears to be enjoying currently, Mark Carney and the MPC have maintained interest rates at their current historic low. While it is looking like the Bank of England jumped the gun early by loosening monetary policy in the wake of Brexit, savers shouldn’t expect a bounce back in rates any time soon.
“People need to be prepared for the ‘lower for longer’ interest rate environment and be sure that they are not simply leaving their money stashed away in cash accounts losing value as inflation climbs upwards. We have been warned that the true effects of Brexit have yet to be felt, so people should be preparing now by planning their financial future.
“With returns on cash accounts so low, and remaining this way for the foreseeable future, savers mustn’t sleep walk into leaving or switching long term investments in cash. Stocks and shares ISAs offer long-term growth potential, although risk is attached, and pension freedom investors should think carefully before moving their hard earned money into cash as one in three have already done.”
No pressing need for MPC to show its hand again
Nancy Curtin, Chief Investment Officer at Close Brothers Asset Management
“It is still early days to judge the full economic impact of Britain’s vote to leave the EU, but recent economic data has provided more reason for short-term optimism than pessimism. The labour market is not showing any signs of faltering, while service PMIs have shown a welcome rebound. Against this backdrop, it was always unlikely that Carney would use his firepower, especially so soon after August’s stimulus injection.
“In a world with zero bound growth, central banks will become increasingly judicious in choosing when, and how to act, and currently there is no pressing need for the MPC to show their hand again. Though trade data following Brexit reflects a positive narrative, there are still long-term considerations. The economy is still imbalanced, and investment has stumbled somewhat in light of uncertainty around the finer details of what a post-Brexit UK will look like.
“Businesses and investors are likely to exercise caution in the meantime, looking ahead to a potentially changing fiscal agenda, and the timing and nature of the article 50 trigger. A trigger as early as Q1 2017 would ease uncertainty, but any longer will make businesses think twice about commencing long-term capex plans.”
Final quarter should bring inflation and a rate rise in 2016
Nick Dixon, Investment Director at Aegon
“A further rate change was never really on the cards – and encouraging signals from recent trade and employment data suggest resilience in the UK economy. We remain of the view that inflation has reached an inflection point and will start to rise during Q4 leading to a rate increase in the first half of 2017. It is possible that subsequent rate increases exceed market expectations, so mortgage holders may want to consider fixing their rate now, rather than rely on persistently low interest rates.”