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Bank of England undivided as interest rates remain unchanged

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

The all-important Bank of England base rate remains on hold at 0.75% yet again. This time the decision was unanimous, with all nine members of the Monetary Policy Committee (MPC) voting to keep the key interest rate unchanged.

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And that’s even more significant because there isn’t even the inkling of a softening of the Bank’s ultra-cautious stance, as yet.

Not even when today’s announcement, which was the first interest rate policy meeting since the latest delay to Brexit, was accompanied by the cheerier news that the Bank has also raised its UK growth forecast for this year. It now expects to see growth of 1.5%, up from February’s forecast of 1.2%.

There’s no doubt that economic growth has been subdued since June 2016, when the UK voted to leave the European Union. And the Bank of England’s MPC has been shielded by uncertainty over Brexit when it has come to its decision to leave interest rates largely untouched. Today, despite the more upbeat forecasts on growth, it’s clear that the Bank is undivided in its decision to maintain that stance, for the time-being.

Interest rates have been at 0.75% since the Bank raised them last August. And at the moment it doesn’t expect to raise them again more than once before 2021. Once Brexit uncertainty has finally been laid to rest, economists expect interest rates to immediately rise. They argue that they have to - otherwise the economy will over-heat.

The MPC has a delicate balancing act to pull off though and inflation could prove to be one of the flies in the ointment. As Tom Stevenson said yesterday, Mark Carney won’t want to be remembered as the Governor who let inflation get out of control.

Cue the warning shot across the bow - the Bank expects a fall in UK house prices this year.

Of course, mention interest rates and two topics always come up - savings and mortgages. While the lower-for-longer interest rate environment has made life difficult for savers for the past decade, the flipside is applauded by borrowers, especially anyone with a mortgage.

And goodness knows, the property sector will be happy to take any positives it can get. Especially when it looked as though it could, I did say could, have turned a corner. According to the latest data, the UK construction sector narrowly returned to growth in April, helped by stronger levels of house building. The strongest rise in residential building since December, in fact. It was starting to look like maybe - just maybe - that Brexit uncertainty, which has been linked to lower commercial construction and delayed client spending decisions, was starting to be counter-balanced by a less cautious outlook when it comes to home-buying. Or at least it did for a day.

Today’s warning that house prices are predicted to fall 1.25% and affordability is already slowing in areas where prices are high - namely London and the South East - are both going to put a dampener on any hopes of a recovery there.

Going back to the problems for savers, who struggle to get their money working in a low interest rate environment, when you throw in the spectre of higher inflation as well, which erodes the value of the pound in your pocket, the negative double whammy is obvious.

Investing in this climate can feel potentially unnerving, but it’s also essential, if you want your money to grow. One solution, to calm frayed nerves and ensure you stay invested, is to put your money into the hands of an experienced fund manager whose job is to watch the markets and global economic twists and turns like a hawk.

Our Select 50 range of funds, offers the best of the best, whether you want to invest in the UK, Europe, the US or take a global view. If even the choice of those is too much, then Ayesha Akbar’s Fidelity Select 50 Balanced Fund is an alternative, giving you the added reassurance of a highly-experienced fund manager picking and choosing for you.

Important information

The value of investments and the income from them can go down as well as up, so you may get back less than you invest. Overseas investments will be affected by movements in currency exchange rates. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.