Bank of England holds interest rates at 3.75%: What it means for your money
The Bank of England Monetary Policy Committee kept interest rates at 3.75% today, but the vote was split with 3 in favour of a hike and 6 against.
Hal Cook, senior investment analyst, Hargreaves Lansdown:
“The Bank’s decision to hold was widely expected, despite headline inflation for August ticking up to 3.1%. But the Bank faces a tricky few months ahead.
Headline inflation has risen and is likely to rise further from here, with October’s energy price cap changes expected to add upward pressure. At the same time, economic growth for June was higher than expected.
But services inflation came in lower than expected, core inflation has been steady and recent labour market data was on the weak side.
Markets still expect rate increases in the UK at some point, though that’s more likely to be 2027 than 2026. Much of it comes down to the oil price. If it remains above $100 a barrel, the case for a rate rise gets stronger.”
Alice Haine, head of personal finance, Hargreaves Lansdown:
“Rates on pause for the sixth consecutive time offer little comfort to households already grappling with higher living costs. With inflation back on the ascent and frozen income tax thresholds continuing to dilute the benefit of pay rises, budgets remain under pressure.
Speculation about interest rate hikes has returned, with implications across household finances, from mortgage repayments and debt costs to savings returns. While savers may welcome the prospect of higher rates for longer, borrowers, particularly those with large mortgages or significant debts, are unlikely to share that enthusiasm. Several major lenders have already nudged mortgage rates up this month, which will test affordability for both homeowners approaching the end of a fixed-rate deal and first-time buyers trying to get onto the property ladder.
For savers, the outlook is brighter. Competitive savings rates are back, giving cash a greater opportunity to outpace inflation and work harder. Those with money festering in an account paying a meagre rate risk missing out unless they shop around for a better deal. Few things are more frustrating for savers than watching inflation steadily erode the spending power of cash. For those who struggle to track their saving rates, a savings aggregator that tracks the best rates for you could prove a valuable time-saving tool.
As savings rates rise, keep a close eye on post-tax returns, particularly as frozen tax thresholds pull more savers into paying tax on their interest. ISAs still shelter up to £20,000 this tax year, though reforms from next April mean those planning to move cash into a tax-efficient home may want to act sooner rather than later. While maximising the current Cash ISA allowance can make sense for short-term needs, once an emergency fund is in place, money not required for at least five years is likely to achieve better long-term returns invested than in cash.”
Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:
“Rates on hold is good news for anyone in the market for an annuity. Annuities have enjoyed a surge in popularity in recent years as rising interest rates sent retirement incomes soaring. Annuity rates have remained robust with the latest HL annuity portal data showing a 65-year-old with £100,000 could secure up to £8,030 per year from a single life level annuity with a five-year guarantee.
If you’re considering an annuity, make sure you do your research. Annuity rates are high, but different providers offer different rates, so shopping around is crucial to ensure you don’t miss out. An annuity can’t be unwound, so you need to be confident that you’ve made the right choice. An annuity portal is a quick way of seeing what the market can offer you.”
Notes to Editors
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