🔔 Base rate sticks at 5.25% - but what next for savers?

Author: Anna Bowes
02nd February 2024

The Bank of England’s Monetary Policy Committee (MPC) held its first interest rate meeting of the year this week – and unsurprisingly, the majority vote was to keep the base rate at 5.25% for the time being. What is perhaps a little more of a surprise is that as well as one member of the nine strong committee voting to drop the base rate immediately, there were two members who would have preferred to see an increase – to 5.5%. This is possibly due to the surprise increase in inflation in December, driven in the main by rising prices of tobacco and alcohol and the fact that services price inflation and wages are still growing well ahead of inflation.

In the meeting notes it was stated that “Although service price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remained.”

As a result, the Committee’s updated projections for inflation in the December report saw the market-implied path for the base rate to fall from 5.25% to 3.25%, almost 1% lower than in the November report.

That said, base rate is now not expected to start to fall until June this year, a little later than anticipated and the MPC stated “The committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates” but “The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably.”

That clears that up then!!

While we’re not sure exactly when base rate is likely to start falling, savers and borrowers should prepare for rates to fall over the next 12 months – good news for mortgage holders, not so much for savers. That said, as long as inflation is lower than the interest rate being earned on your cash, you are actually better off in real terms than if interest rates are higher but inflation is higher still.

Unfortunately we’ve already seen rates falling in anticipation of the inevitable base rate cuts to come, mostly across fixed term bonds and ISAs. But there have also been some announcements that variable rates are being cut, either immediately or soon.

That being said, some variable rates are still better at the moment than they were when the base rate stopped increasing. At the beginning of August last year, the top easy access accounts was paying 4.63% - today there are still plenty of easy access accounts paying more than 5%.

However, fixed term rates have fallen quite a bit since then. Back in August the top 1 year bonds were paying up to 6.05% and of course NS&I launched its 1-year Guaranteed Growth Bond paying 6.20% at the very end of August.

Today the top 1-year fixed term bonds are paying up to 5.16% - but the good news is that the cuts seemed to have slowed down a little bit – offering savers who still want to lock into rates at their current levels a bit of breathing space. But with the trajectory continuing to be downwards, you might want to get a move on or risk missing out.

Keep an eye on our Fixed Rate Best Buy tables and Sharia Fixed Term Accounts if you can lock up some of your cash and if you’ve not reviewed your variable rate accounts for a while, take a look to see if you could be earning a little more ahead of any further rate cuts that will be to come.