Interest rates on hold: Experts respond

Ben Nichols, Managing Director at RAW Capital Partners, said: “Yesterday’s inflation print all but confirmed today’s decision, though the markets had been expecting it for some time. With core and services inflation both applying pressure in August’s CPI, policymakers clearly want to see a sustained downward trend in the underlying figures before opening the door to a more aggressive rate-cutting cycle.

“Today’s rate hold, therefore, may seem like something of a setback, particularly for property buyers and borrowers, but it should have a consolidating effect that will provide greater market and economic stability in the medium to long term. We can probably expect at least one further rate cut before year-end, which should provide a boost to investor sentiment. In light of this, we expect numerous opportunities to arise in the coming weeks and months, especially for investors who diversify their portfolios to meet the ever-changing nature of the markets.

“Indeed, while the BoE is holding rates, the ECB is cutting them, and the Federal Reserve is following suit. As such, we could see some fluctuations in the markets as the major banks relax their monetary environments at different paces and to different degrees. So, investors could look to alternative investments like real estate, private debt and other non-traditional assets to ensure that their portfolios remain robust in the face of any potential volatility.”
 
Lily Megson, Policy Director at My Pension Expert, said, “Today’s interest rate hold will be something of a mixed bag for savers. For some, it might mean continuing to grapple with bloated mortgage and debt repayments, for others, it equates to at least another few weeks of enjoying favourable interest rates on savings accounts. For many, it will indeed mean both.

“Inflation remains sticky and people will be considering the best ways to get their savings goals back on track – while the base rate was held today, cuts are likely to recommence towards the end of the year. Retirement planners, for instance, will be contemplating how to best take advantage of high interest through their financial products, whether savings accounts or pension products.

“With that said, it’s important that savers avoid making hasty decisions in response to inflation and interest rate data. The current complexity of the market highlights the need for the government to rise to the long-promised challenge of providing greater access to financial education and independent financial advice.”
 
Jatin Ondhia, CEO of Shojin, said: “Sticky inflationary pressures have prompted the Bank of England to maintain their conservative approach. While the focus on economic stability is understandable, today’s decision will surprise many who feel it is time to continue the downward trend and lower the base rate in order to revitalise growth opportunities.

“Within the property sector, homeowners and developers have had to deal with the double sting of the high inflationary-high interest environment, with the former having faced higher mortgage rates than at any point since the financial crisis and the latter finding it harder to access much-needed finance.

“With that said, this is still an important moment for investors to reassess their portfolios as base rate cuts are likely to appear again later in the year. Real estate continues to present strong potential, while alternative investments could also offer valuable opportunities to diversify and tap into fresh avenues for growth.”

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Paresh Raja, CEO of Market Financial Solutions, said: “The underlying data in yesterday’s CPI figures dashed any hopes for a rate cut today, but this decision presents an opportunity for investors to prepare for a likely surge in market activity. Indeed, the decision comes as house prices continue to rise, and with economists forecasting that the BoE will cut the base rate at the next meeting, we expect demand to experience an uptick in Q4.

“With this in mind, property investors and their brokers should use the next month to consolidate their portfolios and ensure that they have a robust strategy in place to help them capitalise on any opportunities that a more relaxed monetary environment could create. The ability to move at pace will be crucial as activity picks up, so having the right financial tools to hand will be of the utmost importance as well.

“On this front, lenders also have a vital role to play, and it’s essential that their product offerings are ready to meet the evolving needs of investors and a potential surge in demand. In doing so, they can contribute to sustaining the market’s recovery after what has been a challenging few years.”

Andy Mielczarek, CEO of Chetwood Financial, said: ““The Bank of England’s decision comes as no surprise and reinforces the sentiment that a period of economic stability is best for Britons. With inflation holding steady, it’s important that the central bank lead by calm and confident example to the public, and it has done precisely that.

“Whilst existing mortgage holders would have liked to have seen a further reduction, they can remain optimistic that the borrowing environment will be less temperamental and that they can make confident longer-term financial decisions. New customers can be hopeful that this period of stability continues, and that a more beneficial mortgage outlook can make their investment decisions more attractive.

“For the time being, savers will be happy the rate has remained the same but could be forgiven for thinking it may be the last chance to maximise returns, especially on fixed-rate savings products. They must remain diligent in searching the market for the best returns before a potential further reduction to the base rate.”

 
Scott Douglas, Capital Markets Director at international corporate finance advisor Centrus comments:

“The Bank of England has opted to hold rates steady for another meeting, despite flat GDP growth in July. While the US Federal Reserve’s aggressive 0.5% rate cut might have been a consideration, the UK’s slight inflation overshoot of the Bank of England’s target to 2.2% has made the MPC more cautious. They will closely monitor trends to see that this does not continue to increase any further before having the confidence to vote for a further rate cut. Businesses and consumers will be waiting with baited breath to see whether there will be a cut this side of Christmas; only the next GDP figures will tell.”
 

Bank of England pauses rate cuts despite jumbo Fed move

 
Price rises rarely subside in a straight line, so the reacceleration in CPI inflation to above the Bank of England’s 2% target in July and August hasn’t caused significant angst among policymakers. Indeed, price rises are trending below the BoE’s own previous forecast.

Yet the latest picture also didn’t compel a balance of MPC members to vote for a cut today either. The strength of core inflation remains a concern, and services inflation is still too elevated to justify acting again so soon after August’s reduction.

Instead, a move in November seems odds on. By this stage the data may show a further moderation in wage pressures which feed into services inflation, plus any ramifications from the Budget on October 30^th can be considered. A particularly fiscally tight Budget may tip the scales towards a more rapid loosening of monetary policy from that point.

The US Federal Reserve taking a hatchet to interest rates, slashing by 0.5% instead of a more expected 0.25%, further served to cloud the picture ahead of today’s vote. However, The BoE is in a different place to the Fed. Across the Atlantic inflation has more decidedly fallen back to target. Meanwhile, the UK is still suffering from the effects of an unusually tight labour market and resulting wage pressures. There is simply less comfort that price pressures will concertedly subside.

Businesses and households hoping for further reprieve from higher interest rates will therefore have to wait a little longer. A series of cuts are pencilled in by forecasters over the next year, and if all goes to plan on the inflation front a gentle trajectory back down to the 4% level by mid-2025 should help improve consumer confidence and boost the economy.

However, this more benign scenario should not be taken for granted. The inflation outlook is clouded by several factors: a strong jobs market keeping wages buoyant and services costs high, a more fractious geopolitical backdrop and the lingering impact of reconfigured supply chains. Interest rates will level out much higher than pre-pandemic, and there remains risk to the upside.

George Lagarias, Chief Economist at Forvis Mazars comments: “The Bank of England maintained rates despite a clear “green light” for more aggressive cuts after yesterday’s surprise 0.5% move from the Fed. Unlike its US counterpart, the British central bank is not quick to declare victory against inflation, despite facing significantly more restrictive economic growth conditions. Having said that, we would expect the Bank to pick up the pace in the next few meetings, as both the US and the ECB are on steeper rate cut cycles.”