Interest rates held at 5% but ‘on the path down’
The Bank of England has made an important decision this September: the base rate will remain at 5%. While interest rates have been a hot topic lately, this move to hold the rate steady will have implications for anyone with a mortgage, loan, or savings account. Understanding what this means and how it could affect your financial plans is crucial.
What is the Base Rate?
The base rate, set by the Bank of England, is essentially the interest rate at which banks and lenders borrow money. It influences the interest rates charged on mortgages, loans, and the returns on savings. When the base rate changes, it can affect your monthly payments and the interest you earn on savings.
September 2024: Base Rate Held at 5%
In September 2024, the Monetary Policy Committee (MPC) decided to keep the base rate at 5%. Out of the nine members of the MPC, eight voted to maintain the rate, while one member suggested lowering it to 4.75%. This decision follows a series of previous rate hikes aimed at controlling inflation and stabilising the economy.
The main goal of this decision is to manage inflation, which the Bank of England targets at 2%. Although inflation has been on a downward trend, it remains a concern for the MPC. Keeping the base rate unchanged at 5% allows the bank to monitor and control inflation without causing too much disruption to economic growth.
Why the Base Rate Matters for You
If you have a mortgage, loan, or savings account, the base rate directly affects your finances. Here’s how:
- Mortgages: If you’re on a variable or tracker rate mortgage, you may already know that changes in the base rate can lead to changes in your monthly payments. Since the rate has been held steady, your payments are unlikely to change immediately. However, if you’re nearing the end of a fixed-rate mortgage, it’s worth considering what the current rate environment means for your next deal.
- Loans and Credit: If you have loans or credit cards, interest rates tend to move in line with the base rate. With the base rate remaining at 5%, it means that borrowing is likely to remain at current levels. If you are thinking of taking out a loan, this is an important consideration.
- Savings: For savers, a steady base rate means that the interest you earn on savings accounts is also likely to remain the same. While this may not be great news for those looking to grow their savings, there may be other savings products available with more competitive rates.
What is the Bank of England Aiming For?
The Bank of England has two key targets: to control inflation and to support growth and employment. Inflation is a rise in the general level of prices, and the bank aims to keep it at 2%. When inflation is too high, it can reduce your purchasing power, meaning your money doesn’t go as far. On the other hand, when inflation is too low, it can signal economic problems.
To manage this, the MPC adjusts the base rate based on economic conditions. The goal of keeping the rate at 5% is to balance these pressures, ensuring inflation is under control without stalling economic growth.
The MPC is also paying close attention to global factors, such as changes in oil prices and global trade, which can influence inflation and economic growth here at home. While there has been some improvement in global conditions, uncertainties remain, so the MPC is taking a cautious approach by keeping rates steady.
Economic Outlook for the Rest of 2024
Looking ahead, the Bank of England expects that inflation may rise slightly towards the end of the year due to factors like energy price comparisons and persistent inflation in services such as catering and accommodation. However, wage growth is expected to continue to slow, which may help ease inflation pressures over time.
While the UK economy has shown steady growth, the Bank of England remains concerned about global economic uncertainties, particularly in Europe and the United States. The decision to keep the base rate at 5% is a response to these mixed signals, aiming to protect both inflation control and economic stability.
What This Means for You and Your Mortgage
For homeowners or anyone looking to buy a home, this decision could affect your mortgage plans. If you’re on a variable or tracker mortgage, your payments are likely to stay the same for now. However, if you’re on a fixed-rate mortgage coming to an end, it’s worth reviewing your options.
Mortgage rates are still relatively high compared to a few years ago, but there may be deals available depending on your financial situation. At Kerr & Watson, we can help you navigate the mortgage market, whether you’re looking to remortgage or buy a new property.
Conclusion: Staying Informed is Key
The Bank of England’s decision to hold the base rate at 5% in September 2024 is aimed at managing inflation and supporting the economy. This decision has direct implications for anyone with a mortgage, loan, or savings account. While the rate has remained steady, it’s important to stay informed about what this could mean for your personal finances.
If you have questions or concerns about how this rate decision might affect your mortgage or financial plans, Kerr & Watson is here to help. Our team of expert advisors can provide personalised advice tailored to your needs.
Feel free to contact us to discuss your mortgage options or get advice on protection plans. We’re here to help you make informed decisions that suit your financial goals.
Contact Kerr & Watson Today for Mortgage Advice!
Read more: Bank Rate maintained at 5% – September 2024
