Steven Cameron, Pensions Director at Aegon, comments: “The Bank of England has voted for another 0.25% interest rate hike to 0.5%, the second consecutive increase, in a bid to stem the crisis of rising prices which are squeezing household finances. Inflation is currently sitting at the highest rate for almost 3 decades and predicted to reach 7.25% this summer, partly fueled by the new energy price cap from April even allowing for the Chancellor’s targeted support package.
“Today’s rise, if passed on to cash savers, will offer them a small glimmer of hope after seeing interest rates barely scraping above zero of late. But to put this in perspective, an extra 0.25% interest on £10,000 savings will provide £25 a year, which won’t go very far towards the £693 energy bill increase an average household faces. Borrowers face an even gloomier future with further interest rate hikes likely this year making it increasingly more expensive to borrow money and pay off debt.
“Aegon research shows that over a quarter (27%) of adults are concerned about the impact rising interest rates will have on repaying short-term loans, and over a third (35%) are apprehensive about higher mortgage payments
Commenting on today’s rises in the energy price cap and Bank of England base interest rate, Prakash Chandramohan, strategic policy director at TISA, said: “Faced with rising energy prices, mortgage repayments, future hikes in National Insurance Contributions, as well as inflationary pressures, consumers are understandably set to retrench their spending priorities.
“The financial services industry has an important role in offering help and ensuring a support network is in place, so consumers don’t disengage with their long-term financial priorities.
“A starting point for any firm would be to communicate proactively with its customer base, especially to assist its vulnerable customers, during what is clearly set to be a difficult year."
Felix Currell, Senior Investment Consultant at XPS Pensions Group, commented: “Rising inflation has been at the forefront of people’s minds since the supply-side concerns in 2021, and it is no surprise that the Bank of England are committing to a further increase in interest rates in an attempt to combat it. The key will be whether the right balance can be struck; will recent market growth be sustained with manageable inflation, or will investors lose confidence in a tightening monetary policy environment.
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