Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “As expected, the Monetary Policy Committee decided to hold rates at their first meeting of 2024, while also predicting that inflation could fall to the 2% target in the Spring before potentially slightly rising later in the year. This will undoubtedly fuel speculation that the base interest rate will be cut in the next few months, helping households with mortgages - many of whom will be coming off fixed rates in the next few months, and will be disappointed not to see a cut today - and those with unsecured debt like credit cards.
“However, it remains unlikely that interest rates will fall close to or below inflation this year meaning people considering boosting their savings might find themselves in a sweet spot through 2024 with returns beating price rises. The highest earning easy-access savings accounts currently offer rates of about 5%, meaning that a £10,000 savings pot in a best-buy account could be worth £10,588 in real terms after two years. For possible larger gains, it’s worth looking to an investment product like a stocks and shares ISA or, if you’re able to take a long-term approach, a pension for a chance to significantly beat inflation.
Commenting on the Bank of England’s interest rate hold today, Chris Arcari, Head of Capital Markets, Hymans Robertson, said: “The Bank hasn’t cut interest rates this month because it’s being cautious, with lingering concerns about some elements of domestically-driven inflation. But it recognises the strong progress on inflation largely driven by supply-side developments, and agrees with consensus forecasts that headline CPI inflation will fall below the 2% target by or in the summer. And this comes at a time where UK real growth, realised and forecast, is very weak."
Explaining the background to the Bank’s decision, Chris said:
• “Sectoral divergence in economic activity potentially highlights a key risk to the outlook.
• Further declines in headline inflation should enable the major central banks to start reducing interest rates in the second half of 2024. Indeed, if consensus forecasts are correct, and UK inflation falls below target in the summer, current interest rate expectations might not be that unreasonable.
• However, we are likely to see the Bank of England retain a degree of caution. Tight labour markets and strong wage and services inflation – signs of genuine, domestically-driven inflation pressures - mean the pace of decline is likely to slow and core inflation is likely to take a lot longer to fall than headline measures.
• Easy wins from falling energy and moderating food and goods prices – which arguably owe more to global supply factors a central bank can do little about - are largely in the rear-view mirror. And here, too, there are risks, with developments in the Red Sea posing a threat to global supply chains and oil prices. However, for now, pandemic-era inflation feels unlikely given weak manufacturing activity and goods demand and a more manageable rise in freight costs.”
Shweta Singh, Chief Economist at Cardano: “Whilst there is no change in monetary policy settings today, the suggestion is now firmly that peak rates for this cycle have likely been reached and that the next move will be an interest rate cut. However, MPC members are wise to retain some caution as they plan their next policy move.
“Timing will be everything. The overall tone of February’s monetary policy statement is consistent with a central bank that wants to cut rates but also wants to be sure that they don’t move too fast.
“Inflation is not yet fully tamed. The unexpected rise in headline inflation in the year to December was a timely reminder that there is still work to be done. We think that the helpful trend in goods prices, seen during 2023, will not be enough on its own to return the headline inflation rate to the Bank’s policy target of 2%. For example, annual service price inflation still exceeds 6% and has seen only a very modest improvement since it peaked in Summer 2023.
“The MPC also released updated economic forecasts. These start to reflect a slightly more optimistic growth view. Growth forecasts have been revised higher for 2024-26 on the back of easier financing conditions, lower energy prices, and more supportive fiscal policy. The outlook for inflation is more muddied: headline CPI inflation forecast is revised lower for this year, partly due to lower energy prices, but higher for 2025-26 on the back of a better growth outlook and easier financing conditions. Inflation remains above the BOE target through 2026.
“The risk of a policy mistake that could cause a resurgence in inflation is clear. State pension payments, benefits and minimum wage are all set to increase at a pace much higher than the present rate of inflation in April. And, there is the potential to see even more stimulative fiscal measures in the Spring Budget. We believe that the market pricing for UK rate cuts this year is too aggressive and today’s announcement does not change that view.”
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