The tariff turmoil President Trump has unleashed on the world has dramatically increased the odds of a May interest rate cut.
Before Liberation Day, the chances were considered closer to 50/50.
Although UK inflation is still above target, the worry now is that deflationary forces could well move in soon. Growth forecasts have already been slashed, and policymakers look set to be ready to try and help get the dire outlook back on track.
Producers from across Asia, particularly China, might find that the tariffs will essentially close off the US market, so they could push an excess of cheaper goods to other markets, including the UK.
It means a flagging economy rather trumps stubborn inflation on the list of Bank of England considerations.
What would a rate cut mean for savings rates?
As competition ramped up over tax year end, the savings deals on offer stayed relatively high, particularly in the easy-access Cash ISA market.
But now the market is expecting a rate cut in May, and more later in the year, we can expect rates to fall.
Easy-access rates are much more sensitive to base interest rate falls.
So while fixed terms might not have quite the same headline rate, as easy access deals get less generous and fixed rates rise, the gap has started to close.
It means anyone who has money they don’t need for a fixed period of a few months or longer should consider locking it up for a better rate.
Given that markets now expect roughly three more rate cuts for the remainder of the year, fixed-rate deals above 4.5% might not be around for much longer.
Remember though, fixed-term products generally only allow access to your cash at maturity.
If you’re looking to maximise how much interest you get on your savings, these three simple rules could help:
Fix your savings where it makes sense to take advantage of competitive savings rates.
Look to savings platforms, like Active Savings, for competitive savings rate available.
Use your Cash ISA allowance to take advantage of tax-free interest.
This article isn’t personal advice. Ask for advice if you’re not sure what’s right for you. Remember ISA, pension and tax rules can change, and their benefits depend on your personal circumstances.
What would a rate cut mean for annuities?
Annuities have enjoyed a huge revival in recent years, off the back of increased interest rates.
The prospect of cuts on the horizon means that we could well see incomes start to fall back.
However, it’s fair to say that this isn’t a given and we’re a long way away from the mega low interest rates that we had in recent years.
This means that we think annuities will continue to offer good value, so you shouldn’t feel pushed into taking the plunge before you need to.
Using an annuity search engine to look across the market is a great way of making sure you get the best deal. Including details on your health can also give you an extra income bump.
You also don’t have to lock all your pension into an annuity at once.
Instead, you can annuitise in stages throughout retirement – securing guaranteed income as your needs change.
Taking a mix and match approach with income drawdown, where the remainder of your money can stay invested, can give you the flexibility of drawdown and the certainty of annuities.
And if you develop any health conditions, you can opt for an enhanced annuity with a potentially bigger income. Just make sure you include as much information as you can in your application.
Remember, annuity quotes are only guaranteed for a limited time and will vary depending on individual circumstances. Once an annuity is set up, you cannot make changes, so it is important to consider your options carefully. With income drawdown your income isn’t secure, and it’s possible to get back less than you originally invested.
The government’s free Pension Wise service can help if you’re over 50 and need guidance about your retirement options. You should also get personalised financial advice if you need it.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).
