Published On: Sun, Sep 17th, 2023
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Interest rates to hit 5.5% on Thursday yet savings and mortgage rates may FALL as a result | Personal Finance | Finance


The BoE’s monetary policy committee (MPC) has hiked rates for 14 meetings in a row and a 15th is expected this week. Many analysts (including me) reckon the BoE should now hold rates rather than inflicting more pain on businesses, consumers and the housing market, but it probably won’t.

Its decision may partly be determined by August’s consumer price figure, published on Wednesday, one day before the BoE’s monetary policy committee (MPC) meets.

This could be the last BoE hike which means we have almost hit peak interest rates, which will be welcomed by almost everybody, except savers.

So how will your world change when we get there?

The UK economy has been surprisingly resilient, repeatedly refusing to collapse into recession as many including the BoE claimed it would.

Yet higher rates are hurting with output shrinking 0.5 percent in July, more than expected, while unemployment rose slightly as companies were more reluctant to hire staff.

This was “surprisingly weak”, said William Marsters, financial markets expert at Saxo. “The UK has technically avoided a recession but the economy is under strain.”

He still thinks the BoE will hike on Thursday, as does Jason Hollands, managing director at Evelyn Partners. 

This may be the last increase but we may have to wait until the second half of next year for lower rates, dragging out the pain for investors and borrowers. Savers will be happy, though.

Homeowners on variable rate mortgage should brace themselves for another jump in monthly payments after Thursday, said Sarah Coles, head of personal finance at Hargreaves Lansdown.

For those coming to the end of a fixed-rate and looking to remortgage, the end of the rate rise cycle spells better news. “Mortgage rates have been falling lately. Assuming no major shocks on the inflation front, this may continue.”

Rates will still be far higher than they were a couple of years ago, though, putting pressure on borrowers and house prices. “We may have to wait much longer for rates to retreat substantially,” Coles said.

Savers have enjoyed almost two years of rocketing returns, as interest rates on best buy accounts jumped from around one percent in 2021 to six percent or more today.

Leading two-year fixed bonds nnow pay up to 6.05 percent, down from 6.15 percent in July. Five-year fixed rate bonds have topped out at 5.85 percent. Anyone who has been waiting for rates to go higher before fixing may find that this is as good as it gets.

Today’s highest fixed-rate is the National Savings & Investments one-year bond paying 6.2 percent, which may prove hard to beat. “The market may inch up from here, but we’re not expecting anything particularly striking,” Coles said.

Savers have woken up to the opportunity and are increasingly locking into best buy deals, depositing £10.1billion into fixed rate accounts in July, against an average of just £5.9billion over the previous six months.

READ MORE: BoE may surprise us all by finally doing something right

Easy access rates pay as much as five percent and these could inch up after Thursday.

If your money is sitting in an account paying next to nothing, do not wait. “It pays to switch to the best account today. You can always switch again later if rates rise much further from here,” Coles said.

Pensioners buying an annuity at retirement have done radically better as rates have soared.

Two years ago, a 65-year-old with a £100,000 pension might have got a level single life income of less than £5,000 a year. Today, they can get up to £7,317.

This is great news for retirees seeking the security of a guaranteed income for life, said independent pensions expert Andrew Tully.

As with savings, annuity rates have now settled and are unlikely to climb much higher, so now could be the perfect time to lock in for life.

Delay too long and they might even fall.

Always shop around, as comparison service Annuity Ready found the difference between the best and worst annuity can be almost 10 percent. For someone with £100,000 that could mean an extra £15,000 over a 20-year retirement.

Nobody can say for sure where interest rates will go next, but it looks like we’re near the peak. As we are finding, the impact may be surprising.



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