Interest rates hold at 3.75% – consumer credit reaction

The Bank of England has maintained the base interest rate at 3.75% but warned that rates could increase this year as officials look to curb inflation following a ‘significant energy price shock’  from the conflict in the Middle East.

The Bank’s Monetary Policy Committee (MPC) voted eight to one to keep rates unchanged, with Chief Economist Huw Pill advocating for a 0.25% increase. The MPC has warned that interest rates could climb back to 5.25% amid concerns that inflation – which recently rose to 3.3% – is set to climb further.

Alex Beavis, Interim Director of Retail Banking, LHV Bank said “The Bank of England is kicking the can down the road, but households can’t afford to do the same. This base rate hold was expected by the markets, despite the backdrop of the continued uncertainty in the Middle East and the immediate impact it has had on inflation. While households are counting the cost already in terms of higher fuel costs, there will likely be a further knock-on impact in the months ahead as those raised energy costs feed into the price we pay for other items, such as food. Given the expected growth in inflation in the short term, at least one base rate rise this year looks inevitable.

“The fact that we are all looking at increased outgoings emphasises the need for people to make their money work harder. Now is the time to be proactive; no good can come from leaving cash languishing in a mediocre current account, given so many pay little if any interest, nor in savings accounts which fail to deliver inflation-beating returns.

“Global events, and the approach of the Bank of England, are beyond our control. However, we can control where we keep our money. Acting now, even in small ways like switching accounts, can deliver tangible improvements to your financial health within a short period.”

Melanie Spencer, Growth Director at Target Group, said:“The central bank faces a real tug of war as it looks to control inflation and avoid further pressure on the real economy – all while navigating the implications of the Iran conflict. Against this complex backdrop, holding the base rate appears to be the most pragmatic course of action, mirroring the Fed’s decision yesterday.

“Ahead of today’s announcement, we have already seen a number of lenders reduce mortgage rates and bring products back to market – showing that there is some margin to work with and an appetite for competition. However, with markets still pricing in the possibility of further rate rises, uncertainty remains a key feature of the outlook, particularly as inflationary pressures continue to evolve.

“As lenders find the balance between meeting lending targets and shrewd pricing, operational agility becomes even more of a factor. Lenders that can respond quickly to shifting market dynamics, renewed competition and evolving borrower needs will be best placed to support intermediaries and their clients in the months ahead. Ultimately, success will hinge on efficient, scalable and tech-enabled operations – whether delivered in-house or outsourced to the right partners.”