Have interest rates finally peaked?

The Bank of England surprised us this month by holding interest rates at 5.25 per cent. This ended a run of 14 consecutive interest rate hikes and has led to many asking have interest rates finally peaked.

So what does this mean for you and your money? Can we cautiously hope that interest rates have peaked?

The Bank of England started hiking rates in December 2021 to tackle inflation. It seems to be working, falling from 11.1 per cent in October 2022 to 6.7 per cent in August 2023.

Of course, this is still well above the Bank of England’s target of two per cent, but it has led to cautious optimism that we might now finally be turning a corner.

What do the experts say?

Several analysts are hopeful that regular interest rate hikes might now be behind us, at least for a few months.

Rob Wood, chief economist at the Bank of America, believes interest rates will stay at this level “for quite a while yet, certainly through to the second half of next year, maybe even longer”.

Speaking to Sky News, he said he hopes this decision marks the end of the increases and believes the latest inflation figures “tipped the balance” for the Monetary Policy Committee.

The Institute of Chartered Accountants in England and Wales is also cautiously confident. They believe the Bank of England is “becoming more forward-looking in setting interest rates”.

Economics Director Suren Thiru added: “It will come as a relief for those struggling with their mortgage bills.”

Marcus Brookes, The chief investment officer at Quilter Investors, has predicted “we might start raising interest rates again later this year or in 2024. Describing the MPC’s decision as “bold” and believes the Bank of England is “signalling that its job is nearly done for now”.

“This doesn’t mean the pain will simply go away for businesses and consumers,” he continued. “The Bank of England has clarified that rates will be higher for longer, so investors must prepare accordingly.”

Richard Garland, chief investment strategist at Omnis Investments, is also confident that this UK interest rate cycle has peaked.

“The Bank appears to have concluded that monetary policy is tight enough already to stem strong wage growth given weakness emerging elsewhere in the labour market,” he said.

The Bank of England’s governor, Andrew Bailey, insisted there is “no room for complacency.”

“We’ll be watching closely to see if further increases are needed,” he commented.

“We will need to keep interest rates high enough for long enough to ensure we get the job done.”

So what can you do?

• Check what interest rate you are getting on your savings and look at the site Moneyfacts for up-to-date rates.
• If you have a mortgage, keep an eye on your product expiry date, and if it’s close, you may be able to book a new competitive rate up to 6 months before expiry. If you are struggling with mortgage  payments, read here about the new help available
• NS&I often launch competitive products only for a short period. They currently have a range of products. Read about them here, some of which are market-leading and even allow you to consider investing in green projects.

We’ll be at your side to ensure your money works hard for you throughout these volatile times.

If you have any questions, please contact us; we’ll be happy to speak with you.