MILLIONS of households will collectively breathe a sigh of relief after the Bank of England held its base rate for the third time in a row.
The Bank’s Monetary Policy Committee (MPC) has today maintained the rate at 5.25% after meeting for the final time in 2023.
The Bank of England has held its base rate for a third consecutive time
It had hiked rates 14 consecutive times from record lows of 0.1% in December 2021.
However, the MPC held rates in September and most recently November after signs runaway inflation is slowing.
The figure for the year to October was 4.6%, falling from 6.7% in September and down from a staggering 10.7% at the start of 2023.
The Office for National Statistics (ONS) will announce November’s inflation rate on December 18.
Inflation is a measure of how much the cost of everyday essentials such as energy and food are rising, so the higher the figure the worse it is for your wallet or purse.
A Treasury Spokesperson said: “We have turned a corner in our fight against inflation and real wages are rising, but we must keep driving inflation out of the economy to reach our 2% target.
“By cutting taxes for hard-working people and businesses, and helping people into work, we are forecast to deliver the largest boost to potential GDP on record.”
The BoE’s governor, Andrew Bailey, and other members of the MPC, have hinted rates will stay the same for some time until inflation falls lower.
In a Treasury Committee last month, Mr Bailey suggested the threat of UK inflation should not be taken lightly.
He indicated inflation in the services sector, where most Britons spend their money, is likely to remain at around 6% through the start of 2024.
James Smith, developed markets economist at ING, agreed this was the reason rates had been maintained at 5.25%, and will stay the same for months to come.
He said: “Markets are pricing three rate cuts in 2024 and we doubt the Bank will be too happy about that.
“Expect policymakers to reiterate that rates need to stay restrictive for some time.”
But the Bank holding its rate for a third consecutive time comes despite its forecasts predicting the economy won’t grow next year.
And financial markets are now betting that the BoE will be forced to launch a deep round of interest rate cuts next year amid the growing risk of a recession.
The UK economy shrank in October, the latest figures from the ONS show.
Gross domestic product (GDP) fell by 0.3% in October, down from 0.2% growth in September, the ONS said.
Economists had expected GDP to contract by just 0.1%.
The figures may reignite concerns that the UK economy is heading for recession.
If GDP drops for two consecutive quarters it is defined as a recession, which leads to job losses and wages stalling.
The BoE may respond to this by cutting rates, but it remains to be seen if this will take place anytime soon.
The base rate is often used by high street banks to set the rates they offer to customers on things like loans, savings and mortgages.
Higher interest rates are bad news for households because it makes mortgage bills more expensive.
While a frozen mortgage rate is good news for homeowners facing crippling repayments, people are still more inclined towards saving rather than spending their hard-earned cash.
In a sign a 5.25% base rate could prompt a recession risk, gross domestic product (GDP) fell by 0.3% in October, down from 0.2% the month before, ONS figures revealed yesterday.
Alice Haines, personal finance analyst at Bestinvest, said: “While the prospect of no further rate hikes will offer relief for homeowners and those with excessive debts, the risk that the BoE’s restrictive monetary policy drives the economy into a recession won’t be as comforting.
“A recession can have dire consequences for people’s finances as a weaker economy can cause earnings to stagnate or drop and redundancies to ramp up as companies focus on reducing costs rather than investing in expansion and new hires.”
It comes as the BoE warned nearly a million people could see mortgage repayments soar by more than £500 a month by the end of 2026.
Meanwhile, its own data showed total mortgage arrears balances between July and September reached their highest level in six years, in a blow for homeowners.
What it means for your money
Below we reveal more about what the rate hold means for your money.
Mortgages
Usually if rates rise it means that mortgage bills, depending on the type you have, will increase.
Those on a fixed-rate deal tend to be safe for now until they remortgage.
But other mortgages, such as a tracker or standard variable rate (SVR) mortgage, can be impacted straight away.
Homeowners on variable-rate mortgages might not see their repayments go up straight away, but they likely increase shortly after interest rates are hiked.
But the exact amount depends on your borrowing and your loan-to-value.
However, because the BoE has opted to freeze current rates, your lender may opt to do nothing at all.
Your bank should warn you of any increase to your rate before it goes up.
We’ve got more info on how to find the best mortgage rate deal here.
Credit card and loan rates
Again the cost of borrowing through loans, credit cards and overdrafts can go up if the base rate is hiked, as banks are likely to pass on the increased rate.
Certain loans you already have like a personal loan or car financing will usually stay the same anyway, as you’ve already agreed on the rate.
But rates for any future loan could be higher, and lenders could increase the rate on credit cards and overdrafts – although they must let you know beforehand.
Because of the rate hold though nothing is likely to change for now.
Although you can still cancel a credit card if you want and will have 60 days to pay off any outstanding balance.
Savings rates
Savers are the main group to have actually benefited after the consecutive rate rises.
That’s because banks tend to battle it out by offering market-leading interest rates.
Although banks are usually much slower to act than with passing on higher rates for borrowing.
Of course because the rate will now not be changing for now, banks will likely take advantage and keep their rates the same too.
Anyone currently getting a low rate on easy access savings could find it’s worth looking around for a better rate and moving their money.
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