Bank keeps interest rate at 5.25% amid election season

Bank of England holds interest rates for seventh consecutive time

Written in line with our editorial policy.

Today, the Bank of England announced its decision to maintain the current interest rate. This decision, keeping the base rate at 5.25%, comes at a crucial time as the nation gears up for the forthcoming General Election.

Interest rate held as inflation falls

The Bank of England has kept interest rates at 5.25% for the seventh consecutive time.

This decision to maintain borrowing costs follows yesterday’s official report showing inflation had dropped to the Bank’s 2% target for the first time in nearly three years.

Despite this, the Monetary Policy Committee’s (MPC) move to keep rates at a 16-year high was anticipated by economists and financial markets.

Andrew Bailey, the Bank’s governor, explained: “It’s good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”

With the General Election on the horizon, economic decisions such as interest rates take on added significance. Political parties are vying for voter confidence, promising various economic policies that could shape the future financial landscape of the UK. 

The Bank of England’s decision to hold rates steady may be seen by some as a move to avoid adding further volatility to the economic environment during this politically charged period.

However, economist Ruth Gregory, from research firm Capital Economics, believes there is a “good chance” of a rate cut in August, and that the interest rate could continue to drop to 3% by next year.

Will inflation remain low?

The Bank of England started gradually raising rates in December 2021 to combat rising inflation, which surged following the COVID pandemic and amid the war in Ukraine.

Inflation continued to rise until it spiked to 11.1% in October 2022, the highest rate since 1981.

The consumer prices index (CPI) rate of 2% for this past year up to May was confirmed by the Office for National Statistics (ONS) on 19 June. This figure shows that prices are still increasing, but at the slowest pace since July 2021. 

Officials said the drop was largely down to falling food prices, although the cost of motor fuel rose slightly. 

Inflation coming down to the Bank’s target increases the chances of an interest rate cut within months. 

The impact of interest rates on equity release

Interest rates can have a significant impact on people when making important financial decisions, including those considering equity release. 

Equity release enables homeowners aged 55+ to unlock the value tied up in your property without the need to sell or move house. This can provide a crucial source of funds to top up your retirement finances, make home improvements, pay off the mortgage or help with other expenses.

The most popular form of equity release is a lifetime mortgage, where interest rolls up and adds to the loan over the life of the plan. The interest rate set by providers determines how quickly interest accrues, and therefore, the amount of equity left in your property over time.

If interest rates are high, then you have several helpful options available which you can discuss with your adviser before making a decision. For instance, if you think interest rates might come down in the future but you need access to some cash now, then a drawdown plan might suit you. 

These allow you to unlock a smaller lump sum, at the current interest rate available to you, then – if needed –  draw down further releases in the future at the rate available then. This could save you potentially thousands of pounds in interest over the life of your plan.

You can also consider interest-only payment plans to prevent your loan from growing in size, and equity release alternatives such as downsizing.

<<Use our free online tool to work out how much tax-free cash you could unlock>>

If you want to find out more about freeing up some of your property wealth with equity release, make sure you speak to one of our friendly selected advisers. 

They can explain all the pros and cons of a plan to you, including how a plan will reduce the value of your estate, and tell you if you are eligible for a cash release. Think carefully before securing other debts against your home.

Call our team today on 0808 178 3055 or request a free call back here. 

Sources:

Interest rates remain at 5.25%: Bank of England keeps interest rates at 5.25% in ‘finely balanced’ decision. The Guardian. Accessed 20 June 2024.

Ruth Gregory quotation: Interest rates held at 5.25% by Bank of England for seventh time in a row.  Sky News. Accessed 20 June 2024. 

About Clare Yates. With over a decade’s experience writing about later life financial planning, Clare offers a wealth of knowledge about equity release, pension annuities, wills, LPAs and more. When she isn’t writing, Clare likes to spend her time baking and going on walks with her husband, two children and their rescue dog. Follow Clare on LinkedIn