The Bank of England has kept interest rates at the 16-year high of 5.25 per cent.
The last rate increase occurred in August 2023, concluding a streak of 14 consecutive rises starting from December 2021.
Hymans Robertson head of capital markets Chris Arcari says: “As expected, the Bank of England (BoE) has left rates unchanged at a 16-year-high of 5.25 per cent pa this morning. Despite a small upside surprise in March’s release, year-on-year headline CPI inflation has continued to moderate in recent months, to 3.2 per cent. Indeed, energy price falls and their interaction with the UK price cap, alongside goods and food price disinflation, mean comparable year-on-year headline CPI is likely to fall below target in the coming months.
“However, year-on-year core inflation, which excludes volatile energy and food prices, is running at 4.2 per cent year-on-year – more than double the BoE’s target. There remains uncertainty over how quickly inflation will reach its target on a sustainable basis with services and wage inflation both running at 6 per cent year-on-year and slowing less sharply.
“Nonetheless, we continue to expect the BoE to cut rates this year. We expect the bank to tread cautiously by reducing rates slowly to less restrictive levels given the massive overshoot of inflation in 2022 and 2023. Markets have also coalesced around this view in recent months – markets were somewhat optimistically implying between six and seven 0.25 per cent pa interest rate cuts at the start of the year. These expectations have now moderated to, what is in our opinion, a more realistic expectation of between one and two 0.25 per cent pa cuts in 2024.”
My Pension Expert policy director Lily Megson says: “While high interest rates are often touted as good news for savers, the harsh reality is that an unchanged base rate feels like Groundhog Day for Britons.
“Indeed, the hold comes hand-in-hand with the ongoing burden of sticky inflation and the weighty cost of borrowing. For some savvy savers, there is a silver lining to continued higher rates – namely, strong returns on fixed-term products like annuities. Yet in truth, inflation has not fallen quickly enough, with millions struggling to save for long-term goals such as retirement.
“People should not be left to weather this storm alone, as the government has a critical role to play in ensuring access to independent financial advice and guidance for all. And with a general election fast approaching, it’s in their own interest to take action sooner rather than later.”
Cardano chief economist Shweta Singh says: “Today, the Monetary Policy Committee (MPC) again voted to maintain Bank Rate at 5.25 per cent. Notably, the vote was split (7 to 2) with a minority of MPC members voting for a rate cut to 5.00 per cent – David Ramsden has joined Swati Dhingra in voting to ease this time around. So, whilst there is no change in monetary policy settings today, the suggestion is now firmly that the commencement of the Bank’s easing cycle is close at hand.
“Today’s decision was accompanied by updated economic forecasts. Growth forecasts have been nudged higher marginally and continue to reflect an improving growth view as the economy recovers from the shallow recession experienced at the turn of the year. The outlook for inflation is becoming more supportive of less restrictive monetary policy in the near term although it is not forecast to settle firmly below target until the middle of 2026. These new inflation forecasts from the Bank are slightly lower than those included in February’s monetary policy report.
“The overall tone of the statement is that the MPC is very close to cutting interest rates. Whilst a June rate is likely, this is not our base case. The risk of moving too soon is still there. A policy mistake could ease financial conditions and cause a resurgence in inflation expectations, especially as the full effects of recent adjustments to state pension payments, benefits and minimum wage levels are yet to be see. Accordingly, we expect the MPC to err on the side of caution and wait until August to make their first policy adjustment for this cycle.
“Looking further ahead, we expect gilt yields to fall this year. We expect inflationary pressures to ease sustainably, inflation expectations to remain well-anchored, and the labour market to rebalance. Growth whilst improving, will remain lacklustre. This will increase the value of UK Defined Benefit schemes’ liability benchmarks once again and emphasises the need for schemes to maintain robust liability and cash matching strategies.”