For the fifth consecutive month, the Bank of England has hiked the base rate, this time to 1.25% in today’s monetary policy decision. On the outside, there was little to no question about a rise, but some deliberation around how much it would go up. In the run-up to the meeting, the market had been divided with many pointing toward the possibility of a 0.5% increase as inflation sends shocks through the economy.
Why have they raised it?
The less dramatic hike of the two comes in the face of a cost-of-living crisis, where inflation has now reached an uncomfortable high of 9% - the highest in 40 years. The Bank of England is under pressure to bring down inflation towards its 2% target, and one way of doing this is to increase the cost of borrowing so people spend less and save more.
In a statement released today, the Monetary Policy Committee said that it will “take the actions necessary to return inflation to the 2% target sustainably in the medium term.”
Yesterday the US Federal Reserve ramped up its monetary tightening by pushing the rate up by 0.75%, marking the sharpest rise in 28 years. And they warned of more inflation surprises to come, implying further bold increases in the future.
Despite the Fed stepping up with a triple hike, the Bank of England has taken a more cautious approach, arguing that demand might already be starting to slow in line with May’s forecasts. Critics say that the reserved stance focuses too much on economic growth rather than the growing threat of inflation.
What does this mean for your savings?
As interest rates increase, the cost of doing nothing with savings is getting greater, especially with money deteriorating in low-paying high-street accounts. In today’s landscape, even earning an extra 1-2% on your savings will tame inflation and help towards the cost of living.
You may want to consider your financial protection. If you have more than the FSCS threshold of £85K in the bank, making sure your cash is diversified across multiple banks can provide peace of mind.
In one platform, Flagstone can help you move your savings around with ease to make sure they are protected and maximise interest earned. To find out more about how we make saving simple, speak to us today.