Mike Ambery, Retirement Savings Director at Standard Life plc said: “With yesterday’s inflation data coming in lower than expected at 2.8%, and the recent de-escalation in US-Iran tensions also easing oil price pressures, it’s not surprising to see the Bank of England take a pause and hold rates 3.75%. For now, this suggests rates may be close to their peak, even if the path from here remains uncertain. Markets are currently expecting one more rate rise this year, but that could change if oil prices remain under control and inflation eases. Even so, with inflation still above the Bank’s 2% target, policymakers are likely to want clearer evidence that price pressures are stabilising before considering any cuts. For many households still feeling the impact of higher bills and mortgage costs, this period of uncertainty continues to make financial planning more difficult. For borrowers, today’s hold may offer some reassurance given recent speculation around a possible hike, but the reality is borrowing costs are still staying higher for longer. Around 1.8 million fixed-rate mortgages are due to come to an end this year, with roughly one million of those coming off low-interest deals taken out before rates began rising in 2022*. For many, that means a significant jump in monthly repayments, so anyone approaching the end of a deal should plan ahead and explore their options early. For savers, rates staying higher for longer can support returns on cash, but inflation means headline rates do not tell the full story. Cash has an important role for short-term needs and emergency savings, but for those saving for the longer term, investing through vehicles such as pensions and ISAs may offer greater potential for real returns over time, allowing savings to benefit from compound investment growth and tax relief.”
George Brown, Senior Economst at Schroders said: "For now, the Bank is playing for time rather than going on the attack. Rising inflation expectations have earned a yellow card from a couple of hawkish dissenters, but the majority are content to wait. We think the bar for hikes remains high. A softer labour market and weak growth should help limit second-round effects, and progress on reopening the Strait of Hormuz should also reduce some of the more extreme upside risks to energy prices. But the Bank cannot afford to be complacent. If inflation expectations continue to drift higher, it may yet be forced to step in."
Lindsay James, investment strategist at Quilter: “As was well telegraphed, the Bank of England has kept interest rates at 3.75%, with markets more concerned about whether hikes are still likely this year or if the narrative can shift back to cuts. Clearly the memorandum of understanding between the US and Iran has changed the landscape somewhat, but the benefits of this and a return to normality still seem a long way off. Whilst inflation was below expectations in May and currently under 3%, it is still likely to jump closer to 4% later in the year due to the coming impact a higher energy price cap. Furthermore, despite recent falls in the oil price, it remains higher than it was last year and the Bank of England will feel nervous about cutting rates in that scenario even with a stuttering labour market and uninspired growth. Furthermore, members acknowledged that a weaker labour market reduced the chances of the recent bout of inflation leading to higher wage demands, some felt that households are more aware than ever of how one has led to the other in recent years - a case of once burnt, twice shy. Like the Federal Reserve, therefore, they will probably be inclined to sit on the fence for a while yet and wait for further data as to how the Middle East situation resolves itself. You also have the added complication of political instability hitting the UK at the same time, with Andy Burnham expected to win the Makerfield byelection. Should we see Burnham win and a leadership contest that results in a lurch to the left, the growth hurdles facing the UK may become increasingly harder to clear and thus make the BoE’s job even more difficult than it already is today.”
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