Photo: James Stringer
Savers in the UK breathed a sigh of relief today, as the Bank of England decided not to cut interest rates. Speculation among experts was that the base interest rate would be reduced today, in a move to stimulate the UK economy following the country’s vote to leave the European Union last month.
However, Governor Mark Carney, who met with the new UK Chancellor Philip Hammond yesterday, announced that the Bank of England decided against cutting rates. The news is good news for savers, who would have seen interest on their savings slashed as a result.
The bank’s Monetary Policy Committee (MPC) voted by a majority of 8-1 to maintain Bank Rate at 0.5 per cent, with one member voting for a cut in Bank Rate to 0.25 per cent.
“Financial markets have reacted sharply to the United Kingdom’s vote to leave the European Union,” said the Bank in a statement. “Since the Committee’s previous meeting, the sterling effective exchange rate has fallen by 6 per cent, and short-term and longer-term interest rates have declined. Reflecting the fall in the level of sterling, financial market measures of inflation expectations have risen moderately at short-term horizons, but only to around historical averages, and have fallen slightly at longer horizons. Markets have functioned well, and the improved resilience of the core of the UK financial system and the flexibility of the regulatory framework have allowed the impact of the referendum result to be dampened rather than amplified.
The bank decided to hold off on further decisions until the lay of the land post-Brexit is clearer.
“Official data on economic activity covering the period since the referendum are not yet available,” noted the bank. “However, there are preliminary signs that the result has affected sentiment among households and companies, with sharp falls in some measures of business and consumer confidence. Early indications from surveys and from contacts of the Bank’s Agents suggest that some businesses are beginning to delay investment projects and postpone recruitment decisions.”
“Savers can breathe a sigh of relief – for now at least,” comments John Goodall, CEO and co-founder of peer to peer platform Landbay. “The Bank of England may have opted against a knee jerk reaction to the Brexit decision, but it has made its intention to cut rates in the near future clear. Consumer confidence, already hit by political and economic uncertainty, may well suffer further over the coming months. Any future cut to interest rates will fire the starting gun for a ‘flight to quality’ as savers and investors shop around for a resilient, yet rewarding home for their money while they wait out Brexit uncertainty.”
Joshua Gerstler, Financial Adviser, The Orchard Practice, adds: “I”m not surprised that the Bank of England did not reduce interest rates today. It’s only three weeks since the Brexit vote and less than 24 hours since we changed Prime Minister. To make an adjustment today would have been seen as a panic move and sent out negative sentiments on the state of the UK economy.”
Jean Liggett, Founder & Managing Director of property investment consultancy, Properties of the World, comments: “As a result of today’s surprise interest rate hold, clients are telling us that they are keen to buy properties immediately. Many say that regardless of a hold in interest rates, they are still losing money in real terms by keeping it in the bank as inflation is higher than the interest they have and will be earning.
“We believe however there will be an interest rate cut following the Bank of England’s next scheduled meeting in three weeks’ time which will result in a further increase in enquiries from both first-time buyers and new and experienced investors alike.”Google+