The Bank of England's interest rate vote today is being closely watched by millions of borrowers and savers. With the Middle East conflict and its economic fallout front of mind for rate-setters, expectations for a series of cuts earlier this year have been shelved. The Monetary Policy Committee (MPC) is widely expected to hold the base rate at 3.75%, though some members may vote for a hike to 4%.
Mortgages
More than 80% of mortgage borrowers have fixed-rate deals, which are not directly impacted by base rate changes but are influenced by lenders' expectations of future rates. Since the start of the Iran war in late February, a typical two-year fixed deal has risen by about one percentage point, adding £1,700 a year in repayments for a £250,000 25-year mortgage, according to Moneyfacts. Lenders attribute higher fixed rates to increasing swap rates.
However, some lenders have recently cut fixed rates. Nationwide reduced rates by up to 0.25% for first-time buyers and home movers, with its lowest rate now 4.50%. HSBC and TSB also made cuts. David Hollingworth of L&C Mortgages noted that fixed rates have eased back, but uncertainty remains. More borrowers are considering tracker rates, betting on only gentle rate increases.
Savings
With the base rate on hold and inflation rising to 3.3%, savers face a squeeze. The average easy access savings rate is 2.46%, and 2.75% for an easy access ISA, meaning real-term losses. However, the best one-year fixed rate accounts pay around 4.05%, and the top easy access account from Tesco Bank offers 4.12% (including a 12-month bonus).
Pensions
The state pension rose by 4.85% earlier this month, but rising bills may erode gains if inflation continues to climb. Mike Ambery of Standard Life advised retirees to review their income sources and consider annuities, which are offering near-decade-high rates of around 7.6% for a healthy 65-year-old. This means £100,000 could provide £7,600 a year for life.
Interest Rate Outlook
The direction of rates depends on inflation, wage growth, and the economy. Matthew Ryan of Ebury expects no change or at most one hike this year. But Susannah Streeter of Wealth Club noted markets are pricing in up to three hikes, which could push mortgage rates higher again. TUC General Secretary Paul Nowak urged the Bank to focus on cutting rates to support economic growth.
