THE BANK of England has held off from raising interest rates this month but has admitted that hikes are still looking likely.
Minutes of the Bank’s latest monetary policy committee meeting said rates were held at 0.5 per cent as members wanted to “discern whether the softness in the first quarter might persist”.
UK GDP growth came in at 0.1 per cent in the first three months of 2018, the weakest pace of economic growth for five years. However, the Bank of England’s inflation report, which accompanied the interest rate announcement, said the labour market was strong and suggested activity would pick up.
The Bank also revised its own forecasts for the UK economy, to 1.4 per cent annual growth, from a 1.8 per cent forecast in February.
Its inflation report said the consumer price index (CPI) fell to 2.5 per cent in March, lower than expected at the time of the February report and said the rates of the most import‑intensive components of CPI appear to have peaked. The MPC judges that the impact of the past depreciation of sterling on CPI inflation, while remaining significant, is likely to fade a little faster than previously thought.
“Taking external and domestic influences together, CPI inflation is projected to fall back slightly more quickly than in February, reaching the target in two years,” the report said.
“These projections are conditioned on a gently rising path for bank rate over the next three years.”
The news will bring little respite to interest-starved savers.
Charlotte Nelson, finance expert at comparison website Moneyfacts, said savers have been plagued by low rates for so long.
“Unfortunately, their patience will now be tested once again, as they will have to keep waiting for base rate to increase,” she said.
“Despite this, the savings market is showing some signs of positivity, with rates starting to improve regardless. The fixed rate market has had the largest boost, with competition among newer banks and higher swap rates fuelling the rise.
“With over half of the easy access market paying less than 0.50 per cent, it is little wonder that savers are feeling disappointed. However, savers should see this as an opportunity to assess their options and ensure that at the very least their account pays more than base rate.”
Stuart Lunn, chief executive of peer-to-peer finance platform Lending Crowd, said the decision would “maintain the strain felt by hard-pressed savers”.
Stuart Law, chief executive of business P2P lender Assetz Capital, said he wasn’t surprised by the decision.
“This change in thinking for the Bank of England following an expected rate rise is hardly surprising given the economic uncertainty and poor GDP growth figures,” he said.
“We expect that any increases that do happen over the next year would simply be a short-term measure ahead of Brexit, in case there is a need to drop rates again next year.
“Even if interest rates do rise slightly later this year, it’s likely to only be by a small amount. Despite the predicted drop in inflation, this announcement is likely to receive a less than warm reception from high-street savers, who are seeing the value of their hard-earned money decreasing each day through inflation – and of course, many banks will not pass all or any of this rise on to savers.”