A rate cut is never nailed on, but it’s looking very likely we’ll see one when the Bank of England meet next Thursday.
The market expects the UK base interest rate to be cut from 4.25% to 4% next week, and is then expecting one more cut by the end of the year, possibly in November or December.
On the face of it, stubborn inflation could threaten the outlook for rate cuts.
However, much of this is the result of rising fuel and energy prices – driven by global energy costs.
The Bank is fairly confident that this will work its way through the system and inflation will fall again without any significant intervention.
It has also made it clear that slightly higher inflation needs to be balanced against threats to growth.
UK GDP fell in both April and May, and with a backdrop of heightened global uncertainty and trade wars, there are some powerful headwinds.
In this environment, it’s essential that higher rates don’t risk making things worse.
Meanwhile, the weakening jobs market, and the slowing of pay rises, mean less risk of higher wages feeding further inflation.
All of this points to a cut next week, and more cuts in the months to come.
What does this mean for savings rates?
A cut next week is likely to mean savings rates fall, particularly easy access rates given they can be more sensitive to base rate cuts.
At the moment, unusually, the most competitive fixed terms currently have lower headline rates than the most competitive easy-access deals.
Given that markets now expect two rate cuts for the remainder of the year, we think easy-access rates could fall towards 4%. Fixed-rate deals, however, could remain relatively stable, eventually offering higher rates than easy-access products.
It means anyone who has money they don’t need for a fixed period of a few months or longer could consider tying it up for a better rate in the longer term.
What should savers do?
It makes sense to pick the right type of savings account for your needs and checking online banks and savings platforms for the best possible deals.
An online savings platform, like Active Savings, means you can switch banks to find great rates all in one place, without spending lots of time shopping around yourself.
Active Savings brings some great rates on the market from over 30 banking partners through one easy-to-use online account.
It also offers long and short-term fixed rates, as well as easy-access products.
Remember though, fixed-term products generally only allow access to your cash at maturity.
What does it mean for annuity rates?
The annuity market has been through a period of unprecedented strength, with incomes hovering near all-time highs.
Latest data from HL’s annuity search engine shows a 65-year-old with a £100,000 pension can get up to £7,793 per year from a single life level annuity with a five-year guarantee.
However, with rate cuts looming, there’s a chance we could see these incomes come down over the coming months.
So, if you’ve been putting off buying an annuity, now could be a good time.
It’s a decision that you shouldn’t rush though.
That’s because once you buy an annuity, it can’t be undone.
It’s important to scan the market before deciding on a quote and make sure you get the right kind of annuity for your needs. There’s a range of income, payment and death benefit options to choose from.
An annuity search engine is a great way of getting quotes from across the market so you can see what different providers can offer and help you make the right choice.
Remember, annuity quotes are only guaranteed for a limited time and will vary depending on individual circumstances – you might get a higher income if you disclose health and lifestyle details. Rates can also change regularly and go up or down in future.
This article isn’t advice. Unlike the security of cash, investments can rise and fall in value, so you could get back less than you invest. The government’s Pension Wise service can help if you’re over 50 and need guidance. You can also get personalised financial advice if you’re not sure what’s right for you.
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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 (company number 2122142).