Earlier today, the Bank of England's rate setting committee announced that it had voted decisively to keep base rate on hold at its record low of 0.5%.
This was a largely unexpected decision, with it having been predicted that base rate would be cut following repeated hints from Governor Mark Carney, but it was felt that there haven't been sufficient indicators since the referendum result to deem any action necessary. But just what does it mean for you?
At first glance, the decision appears broadly positive. There'll be no shock reaction from the markets, and at the time of writing, the pound had surged on the news – which means more holiday spending money!
Savers will also be breathing a sigh of relief as it should mean that providers aren't compelled to cut their interest rates even further – a common theme of recent months – and it'll also come as welcome news to those who may be seeking an annuity in the near future, as Yvonne Braun, of the Association of British Insurers (ABI), explains:
"Savers and customers considering buying an annuity will welcome the decision by the Bank of England not to further ease monetary policy today. Sustained quantitative easing combined with continued low interest rates is one of the main factors keeping annuity rates low, and further action by the Bank of England could have added to the downward pressure."
All in all, it provided some welcome relief, but there's the chance that this may only be a short respite. Indeed, the minutes from the committee meeting said that most members expect monetary policy to be loosened at its next meeting in August, which suggests that a near-definite cut could be on the cards.
However, this means that we may not be able to enjoy a truly stable market for much longer, and savers could be hit particularly hard. Ben Brettell, senior economist at Hargreaves Lansdown, comments: "Despite today's decision, the referendum result has kicked the prospect of higher returns on cash into the seriously long grass. Rates could conceivably remain at rock bottom for the next five to ten years. Clearly this is good news for those with variable rate mortgages, but savers hoping for a return to the 'normal' rates seen pre-crisis will be waiting a long time."
The silver lining could be for borrowers. Our latest data reveals that providers are already factoring a potential base rate cut into their pricing decisions, which has helped push average mortgage rates down further this month, particularly variable rates. If the path continues, there's the chance that rates could fall further still, albeit with the trade off of lower savings rates.
So, for the time being, the status quo continues – but for how much longer, or what happens longer term, is anyone's guess.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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