By a vote of 6 to 3, the Monetary Policy Committee increased the base rate by 0.5% to 3.5% earlier today, the Bank of England's ninth consecutive rate hike overall.
Households with variable mortgages in the UK will find this to be a financial blow, however rising interest rates on savings accounts will continue to reward savers with even higher returns. And for investors that have been slow to shift to cash, rates nearing and exceeding 5% will make the option of saving a hard one to ignore.
This forceful hike has inevitably been driven by ongoing inflationary pressures and persistent labour market tightness. In the current UK economy, inflation is running at more than five times its target at 10.7%, pinned on a mix of playing factors including energy prices and supply chain disruptions.
Earlier this week, Chancellor Jeremy Hunt indicated that he would welcome a firm stance on rates from the central bank, saying that inflation is "the number one enemy that makes everyone poorer" and that bringing inflation down is his top priority.
Despite the sizeable increase, it has been suggested that the rate-raising cycle is set to cool off following a frantic year and last month’s heftier hike of 0.75%, the highest since 1989. With the market possibly settling down, savers may decide to lock in a fixed rate they like the look of.
A year ago, the Bank of England made its first move towards higher rates from 0.1%. This dramatic shift combined with record inflation means that the cost of doing nothing with savings has become more expensive. Any cash left in low-paying accounts or current accounts is decreasing in value and doing nothing for its owner. For savers, shopping around and switching to a better savings account could earn them substantially extra cash.
Considering opening a new savings account? Click here to learn about the different types of accounts to suit your savings needs.