MILLIONS of households can breathe a sigh of relief as interest rate hikes have been paused.
The Bank of England (BoE) has opted to hold the current base rate at 5.25%.
The Bank of England has paused its base rate in a relief for homeowners
GettyMillions of households can breathe a sigh of relief as interest rates have been paused[/caption]
The BoE base rate is often used by high street banks to set the rates they offer to customers on things like loans, savings and mortgages.
In August, it lifted the base rate by 0.25 percentage points from 5% to 5.25%.
Today marks the first time since December 2021 that the central bank has voted not to raise rates.
Following the announcement, Steve Seal, chief executive officer at Bluestone Mortgages, said consumers and borrowers would be letting out a “sigh of relief”.
He added: “This combined with the return of (mortgage) rates below 5% indicates that we may have turned the corner, and should give borrowers a boost of confidence.”
Meanwhile, Jeremy Hunt, chancellor of the exchequer, said: “We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments.
“Now is the time to see the job through.
“We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”
Some economists had expected to see the 15th consecutive rise to 5.5%, which would have been the highest rate since 2008.
However, yesterday’s surprising inflation figures are thought to have eased the pressure enough to pause rates this month.
The Consumer Price Index level of inflation decreased from 6.8% in July to 6.7% in August, according to the Office for National Statistics (ONS).
It means that rates – which are a tool used by the Bank to bring inflation down to its 2% target – do not need to climb as high as previously feared.
Yesterday, an 80% expectation of rates rising fell to around 50% after the figures were released, AJ Bell said.
This indicated that analysts were divided over how the Monetary Policy Committee (MPC) could vote.
Ahead of today’s announcement, Suren Thiru, the economics director for chartered accountant group ICAEW, said raising interest rates would be a “misstep” following the surprise inflation fall.
The Federation of Small Businesses (FSB) agreed that the decision must mark a peak for UK interest rates “one way or another”.
Chancellor Jeremy Hunt claimed the fall in the CPI rate shows “the plan to deal with inflation is working – plain and simple”.
He added: “But it is still too high which is why it is all the more important to stick to our plan to halve it so we can ease the pressure on families and businesses.
“It is also the only path to sustainably higher growth.”
The government in January pledged to halve inflation from 10.7% to around 5.3% by the end of the year.
The BoE pausing rates today will be welcomed by millions of homeowners and borrowers who won’t see their current rates rise.
Savers will likely see no change as banks won’t be as pressed to battle it out for market-leading interest rates.
What it means for your money
Below we reveal more about what the rate pause 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 remortage.
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.
This will come as a huge relief to those who have faced 14 consecutive increases to their mortgage bill.
Either way 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 pause 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 last 14 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 the time being, 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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