Bank of England New Highs Predictions: What’s in it for UK Cash Holders

Jun 2nd 2023

It certainly has been an interesting few days for the financial industry. April’s inflation data was described as a “shocker” by HSBC’s Chief European Economist as the Bank of England’s latest interest rate rises failed to curtail the UK’s sticky inflation rate.

Now, experts are estimating the Monetary Policy Committee could well take the base rate up 25bp twice over the summer – with a Reuter poll showing economists expecting the Bank of England to raise the rate to at least 5.00% or higher by end-September.

Meanwhile, Goldman Sachs suspects the Bank Governor could ratchet up borrowing costs to 5.25% – the highest it would have been since February 2008 during the Global Financial Crisis.

The Bank went further, adding that it does not believe the Bank Rate would go down until at least 2024.

This was echoed by Work and Pensions Secretary Mel Stride, who described the fight to halve inflation to reach the Bank’s target would be “bumpy and difficult”, pushing some economists to believe the terminal rate could land “above six per cent.”

The fact that the Bank of England may be persevering with a far more aggressive tightening policy than previously expected – with a high probability of surpassing the US Federal Reserve – could negatively impact borrowers amid the Cost of Living Crisis. Yet we believe it could well have a positive impact on UK savers.

Last month, the Financial Conduct Authority (FCA) challenged several high-street banks after it considered they had actively not passed down interest rate increases onto savings account customers.

Considering the pressure on banks to introduce more competitive rates for their widely held savings accounts, we expect to see an uptick in returns for savers – especially those on cash management platforms such as Insignis Cash.

While the next few months will prove crucial for the Bank of England’s fiscal policy fight against inflation (which economists believe won’t fall to its 2% target level until 2026), the FCA’s “consumer duty” new rules could see savers profit from the Bank’s strictest cycle in decades.