🔔 Base rate remains at 5.25% for another month

Author: Anna Bowes
17th May 2024

It’s no surprise that the Bank of England base rate remained at 5.25% following the latest Monetary Policy Committee (MPC) meeting, as although inflation has fallen, some aspects are still proving a little stickier than hoped and the Bank will want to see more evidence that it is well and truly under control before cutting.

The Governor of the Bank of England, Andrew Bailey, said he is ‘optimistic that things are moving in the right direction’ but he warned that a rate cut at the next meeting is ‘not a fait complete, it’s not a done deal’. That said, he did state that it was ‘likely that we will need to cut bank rates over the coming quarters’.

It’s coming, we just don’t know when. However, at this latest meeting there were two members of the nine strong committee that voted for a rate cut, one more than last time.

Whilst bad news for borrowers, this delay means that savers can breathe a sigh of relief as it should mean that savings rates stay higher for longer. In fact, in anticipation of this latest move, there have even been a few rate hikes to some of the best buys, including the fixed term bond tables. Even longer-term bond rates have seen a couple of upticks recently although overall things have quietened considerably, perhaps taking a breath to wait and see what happens over the next few weeks to inflation and to base rate. 

But there are literally hundreds of savings accounts available currently paying more than inflation, even if you pay basic rate tax on your interest.

The top easy access account with Oxbury Bank is paying 5.02% AER on a minimum deposit of £20,000 – that is 4.02% after taking off basic rate tax. With the latest inflation rate coming in at 3.2% you can see that savers are finally able to earn more than inflation once again.

Of course once the base rate does start to fall, with a variable rate accounts, the rate you are earning can be cut at anytime. Which is why fixed rate bonds are proving so popular at the moment.

The top 1-year bond is with Habib Bank AG Zurich and is paying 5.21% - that’s 4.17% after basic rate tax. Even the top 5-year bonds are inflation busting with the best rate available currently with Birmingham Bank paying 4.58% gross – so 3.66% after basic rate tax has been taken into consideration.

With 1-year bonds rate rises slowing, whilst 5-year bond rates still moving ever so slightly, the difference between the two is at the narrowest it’s been all year. At the end of last year, the average rate of the top five 1-year bonds was 0.80% higher than the average of the top five 5-year bonds - today the gap is down to 0.60% - although of course rates as a whole are also a little lower.

So now is the time to have a review of your savings and perhaps even tie some of it up for longer, if you won’t need access. Although you might earn a little less immediately as longer-term rates are lower than shorter-term, this could hedge against future interest rate cuts and see you sheltering at least some of your cash from the effects of inflation for longer.