The Bank of England has maintained the base rate of 0.5 per cent, disappointing millions of savers who have been struggling with low interest rates.
Following today’s meeting of the Monetary Policy Committee (MPC), the Bank decided against raising the base rate, citing weaker than expected economic activity in the first quarter of the year. The MPC also revised the UK’s growth forecast for 2018 from 1.8 per cent to 1.4 per cent.
In the minutes of the meeting, the committee hinted that any future rate rise would happen gradually, and would not amount to a major change, suggesting that consumers will have to wait even longer before they see decent returns on their savings accounts.
“Were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon,” read the minutes of the meeting.
“As previously, however, that judgement relies on the economic data evolving broadly in line with the Committee’s projections. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.”
Yesterday, analysts correctly predicted that there would be no rate rise this month. Financial professionals are now urging savers to think carefully about how they manage their money in a low interest environment.
“The interest rate decision will come as no surprise following Bank of England figures last week showing that unsecured borrowing slowed sharply in March,” said Simon Longfellow, head of investment site stepstoinvesting. “Finances continue to be squeezed while next to nothing is gained on savings as banks fail to pass on even the last rate rise – so even if they had risen consumers would have been unlikely to see the effect.
“With a low base rate, savers need to be aware of other options to make the most of their money.”
“The reasons for caution shown today by the Bank of England are clear,” added Nick Dixon, Investment Director at Aegon. “The pound appears to have stabilised reducing future inflation risk, UK growth expectations are lower, and the global picture is less certain.
“We see these forces, reinforced by Brexit uncertainty, persisting into the second half of 2018 and reducing the likely pace of future rate increases.”
Meanwhile, Fidelity analysts described the Bank of England governor Mark Carney as an “unreliable boyfriend”, criticising his decision to hold the base rate at 0.5 per cent, which was once considered to be an “emergency rate”.
“Until a few weeks ago, a further quarter point rate hike to 0.75 per cent looked almost guaranteed,” said, Tom Stevenson, investment director for Personal Investing at Fidelity International.
“But very weak UK GDP growth figures and fast-retreating inflation has seen a rapid reversal of the Old Lady’s increasingly unhelpful forward guidance. The Bank of England has marched investors up to the top of the hill only to march them back down again.
“If the forecasts are right then expect interest rates to remain lower for longer as UK growth lags the rest of the world, inflation subsides and Brexit clouds remain. This is good news for borrowers but piles yet more misery on savers.”