David Walker, Chief Investment Officer, Hymans Robertson, said: “Despite the continued uncertainty stemming from the conflict in the Middle East, and the inevitable inflationary pressures this has brought, the decision from the Bank of England (BoE) to hold interest rates steady at 3.75% was in line with mainstream expectations. The IMF recently warned central banks not to rush rates hikes and the BoE looks to have heeded this advice, at least until there is clearer data on the real impact of events on inflation and the UK economy. UK gilt markets have continued to react to the evolving situation, having shifted from pricing rates cuts to pricing in rate hikes, as the conflict in the Middle East and its impacts have developed. They have also seen some of the biggest rises in yields relative to global peers in recent weeks, seemingly driven by short term market implied inflation. However, the MPC is clearly mindful of the current economic outlook with signs of slowing growth and weakening labour market likely to have been key considerations when making their decision. For UK pension schemes, continued volatility in gilt yields and inflation expectations is likely to feed through into funding level movements for DB schemes, while persistent inflation pressures risk eroding real returns for DC savers if uncertainty remains elevated. In the near term, it may be the impact on growth and risks asset returns that have a more meaningful impact on financial outcomes.”
Mike Ambery, Retirement Savings Director at Standard Life plc said: “Today’s decision to hold interest rates at 3.75% was widely expected and reflects the careful balancing act the Bank of England now faces. Policymakers are trying to keep inflation under control at a time when the outlook for prices is highly uncertain, without putting unnecessary pressure on an economy that is showing only tentative signs of growth. Against the backdrop of heightened uncertainty linked to the conflict in the Middle East, this feels like a moment to hold steady and see how conditions develop before making any further moves. At the start of the year, many expected a fairly straightforward path to lower rates through 2026, but it’s safe to say things now look much less certain. Last week’s data showing inflation rising to 3.3% highlights the challenge ahead, with the initial impact of higher energy prices now starting to come through. Further pressure on household bills is expected in the months ahead, meaning the Bank will want stronger evidence that price rises aren’t becoming more entrenched before cutting rates. For savers, rates staying higher for longer can provide support, especially for those holding cash. However, the wider picture matters and inflation can continue to weaken the value of savings in real terms, even when headline rates look attractive. Those saving for the long term should consider tax-efficient options such as pensions and Stocks and Shares ISAs to help their money work harder alongside rising prices. For borrowers, the decision means relief is still likely to take time. Those on variable-rate mortgages or nearing the end of fixed-rate deals may continue to face increased costs for longer than hoped. Planning early, reviewing options regularly and understanding how repayments could change remains vital, particularly for households already managing stretched budgets.”
David Rees, Head of Global Economics, Schroders said: "Today sees no change to interest rates or the Bank's hawkish tone. With headline inflation rising to 3.3%, wage growth easing only gradually and services inflation still looking sticky, the risk is that this shock becomes more persistent. There is also a second-round risk later this year if the energy squeeze morphs into pressure on food prices. Higher fuel and shipping costs, plus renewed pressure on inputs such as fertiliser, could lift grocery inflation with a lag. The risk of persistently higher inflation, along with speculation about political change after the local elections, has lifted gilt yields to near 20-year highs. Even so, the bar for hikes remains high. With some slack emerging in the labour market and growth likely to weaken if disruption drags on, we doubt the Bank will tighten unless economic activity stays strong enough to absorb it."
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