Bank of England holds interest rate – consumer credit industry reaction

3rd November 2023

The Bank of England’s Monetary Policy Committee voted in favour of leaving the base rate at 5.25% and has said that this is likely to be the peak with rate cuts are unlikely until at least the middle of next year, and even then are expected to be very gradual.

The. MPC voted 6-3 to hold rates steady, with three members preferring to raise rates by 0.25% to 5.5% with inflation is expected to fall to around 4.5% this year, and return to 2% by the end of 2025.

The European Central Bank and the Federal Reserve have left interest rate policy unchanged in recent days.

Andrew Gall, Head of Savings and Economics at the BSA said “Today’s decision to keep the Bank Rate at 5.25% will be welcome news for many.”

“Whilst we can’t yet be confident that mortgage rates have reached their peak, we have started to see them nudge down a little and today’s news is unlikely to reverse that. However, while inflation remains persistently high, overall rates will stay higher for longer than we thought earlier in the year.”

“The number of borrowers struggling to maintain their mortgage payments has started to increase. Whilst building societies’ lower risk approach to lending decisions means they have proportionately fewer loans in arrears compared to banks, there is no room for complacency.  Societies are conscious that it is a real worry for families and individuals who are having difficulty meeting their mortgage payments.  They are ready and well equipped to offer practical, tailored support to anyone who may be struggling and I would encourage anyone with concerns to contact them as soon as possible, preferably before they miss any payments.”

“For savers, there remains a wide choice of accounts with attractive rates available for all levels of deposit. Shopping around can now make a sizeable, financial difference, particularly for those who hold most of their savings in their current account. There is currently £260 billion of savings in accounts not earning any interest, meaning an average saver could be missing out on over £1,000¹ extra income a year.”

David Cheadle, acting Chief Executive at the Money Advice Trust said “Interest rate pain is set to continue for millions, with higher housing costs now ‘baked in’ and continuing to bear down on household finances. Our advisers at National Debtline are seeing the impact that higher interest rates are having as people come to the end of fixed rate deals, and for the minority who are on variable rate products.”

 For renters, the situation has led to sustained pressure and uncertainty as rates are passed on by landlords. Coupled with the high cost of other essentials, like energy and council tax, many of the people we help are struggling with budgets that simply no longer stretch to meet them.”

Sebrina McCullough, Head of External Relations at Money Wellness said “The interest rate being held for the second consecutive time will bring some comfort to homeowners struggling to keep up with mortgage payments. However, arrears are already 23.3% higher than they were last year and with half a million fixed rate mortgages due to come to an end before Christmas, we’re predicting there’ll be a large rise in people having to seek debt help next year.”

“We’re already helping higher than normal numbers of homeowners, with one in four of those currently in arrears.”

Andy Mielczarek, Founder and CEO of SmartSave, a Chetwood Financial company, said: “The deciding factor in today’s interest rate decision is the floating spectre of recession – a prospect dreaded by economists and consumers alike. There are reasons for optimism, such as falling shop price inflation, but the Bank of England can only hope that holding the rate steady will ward off further decline.”

“UK inflation remains the highest among the world’s rich economies, and while recent hikes may have curbed this regrettable trend, the impact on savers is considerable. Higher interest rates are intended to do more than combat inflation – they are supposed to protect Britons’ savings from losing too much of their real-term value. However, failure on the part of high-street banks to pass higher rates to consumers has left Britons worse off than they might have been.”

“While the big banks are gradually catching up to the higher rates set by the central bank, the onus remains on savers to be savvy and keep their eyes peeled for the best returns if they want to protect their nest eggs. Although rates have held firm this week, Britons must act quickly to protect their savings before recent hikes are reversed and the high street swiftly follows suit.” 

Alastair Douglas, CEO of TotallyMoney said “Today’s decision to hold the base rate was widely-expected — and the days of ultra-low rates are unlikely to return, at least not in the near future. It’s good news for savers, but not so brilliant for borrowers.”

“Some homeowners haven’t yet felt the brunt of the previous hikes, and will be in for a shock when their fixed rate deal comes to an end. Mortgage defaults are already rising at the fastest pace since 2009, and if you’re struggling to keep up with payments, then get in touch with your lender as soon as possible. The Financial Conduct Authority has ordered banks to put their customers’ needs first, and this means you could move to reduced monthly payments, or extend the term of your deal.”

“Remember that this won’t negatively impact your credit rating. However, missed payments can — and they could stay on your credit file for up to six years. If these persist, you might end up in mortgage arrears, leading to court action and even repossession.”

Simon Webb, Managing Director of capital markets and finance at LiveMore, said: “The Monetary Policy Committee has made the decision expected by the market by keeping the base rate at 5.25%. It follows in the footsteps of the US Federal Reserve and the European Central Bank, which both kept rates on hold this month. All three of these institutions have expressed how unlikely it is that rates will fall in the coming months so the best we can hope for is no more rises in the foreseeable future.”

“Further rate rises will challenge consumers and the economy as growth is very slow with the latest GDP figure at 0.2% and the threat of recession has not gone away. More rate rises may just tip us over the edge as borrowing costs continue to rise along with the high cost of living.“

“The MPC members voting reflected this sentiment too with six members in favour of no rise and three voted for an increase. This is a divergence from the previous meeting, which was much closer at 5-4 opting to hold the rate.”

Susannah Streeter, Head of money and markets at Hargreaves Lansdown said “The Bank of England is singing the same tune as the Federal Reserve and has stayed firmly in the ‘wait and see’ chorus, cautious that the full impact of interest rates hikes has yet to be felt. The decision to press pause, and hold rates at 5.25%, was widely expected, so caused no major market movements initially. The FTSE 100 has remained deep in positive territory, while the pound shifted slightly higher against the dollar, building on gains made since yesterday, though sterling is still largely hovering around lows not seen since March.”

“Although this wasn’t a unanimous vote, there is a growing strength of feeling that previous rate hikes need more time to feed through. There are deepening concerns about the faltering economy as the high borrowing costs batter financial resilience and policymakers paint a stark picture of a stagnation scenario lasting until 2025. The minutes highlight that UK GDP is expected to have been flat in the third quarter, weaker than initial estimates. The economy only just eked out growth in August and there has been a surge in company insolvencies.”

“Although inflation was still more than three times the bank’s target, it’s expected to have taken another big step down in October, and private sector wage growth is also showing signs of easing. It’s far from surprising that the majority of policymakers want the economy to take a breather from this painful cycle of rate hikes. The potential for oil prices to shoot higher remains a worry, but not a major concern right now. So, barring further shocks, it looks highly likely we have hit the peak in the cycle, but cuts are still not expected until the second half of next year.”

Paul Heywood, Chief Data & Analytics Officer at Equifax said “The Bank’s decision to maintain the base rate is a bittersweet sign for the UK credit sector and consumers. While the end of a record run of interest rate hikes appears to have finally arrived, the current rate is still far above the pre-pandemic levels that borrowers had grown accustomed to.”

“While our data suggest consumers are adapting to higher rates, there has been a steady increase in the total balance across credit cards which now sits 7% higher than this time last year.  The higher balance is one of the factors driving increased monthly credit card repayments which themselves are now sitting 13.2% above figures seen before the onset of the cost-of-living crisis in late 20211.”

“Equifax and our lending partners remain well prepared to ensure that consumers are effectively supported throughout their borrowing journey and can access the credit they need to live their financial best.”