Thursday’s Bank of England base rate rise is the 12^th rate hike in a row since December of 2021. This continues the BoE’s response to record inflation and represents really the only measure in its armoury to keep consumer spending under control.

The jobs market in the UK has remained remarkably resilient and this might have granted some of the confidence in the BoE’s Monetary Policy Committee’s (MPC) to vote 7 to 2 in favour of the 0.25% interest rate increase. In addition, forecasters in the Bank had considered that we would suffer a fairly severe recession in the latter part of 2023, however, they have now revised this to a recession being unlikely.

Food inflation is the latest focus on the continued stubbornness of the inflation figure of over 10% moving downwards, however, energy costs have reduced significantly recently perhaps signalling a reduction in inflation to come. Following the decision, the MPC had stated that it was “important to continue to address the risk of more persistent strength in domestic price and wage setting”, which comes of the back of continued strong wage growth.

What does this latest interest rate increase mean for you? Those on variable rate mortgages and those with fixed rate mortgages approaching the end of their term will be hardest hit with this rate increase decision. However, there are longer term effects for business that will take time to filter through the system. We know that businesses need to borrow money to expand and therefore, they are less likely to want to do this with higher borrowing rates, which in some way explains the continued low growth forecasts for the UK economy and a freeze on recruitment in many sectors particularly building. Borrowing comes in many forms for business, not just Banks, but also institutional lending through corporate bonds and also Private Equity. The increase in borrowing costs comes with the knowledge that there is no shortage of money in the system through which your savings, pensions and investments can benefit.

Corporate Bonds – coming from an all-time low point following last year’s disastrous performance figures, corporate bonds (and all types of fixed income security) offer a great opportunity to grow your pensions and investments with new issuance offering yields not seen in well over a decade.

Cash Savings – Interest rates in the banks have largely mirrored the BoE base rate, as you would expect. Therefore, holding cash looks as positive as it has since the financial crisis back in 2008. Clearly, cash is no hedge against inflation as even at these comparatively high rates they remain at less than half the inflation rate.

What we can do to help you make the most of this situation – When managing your pensions and investment portfolios we look to make the most of the longer-term opportunities that these higher interest rates represent and we will talk to you about the correct asset mix of your plans. For Cash deposits we are pleased to announce that we now use Cash Management Platform which provides you with the opportunity to divide your lump sum cash savings with different banks or building societies under one platform setting. This ensures that you do not breach the FSCS limit of £85,000 with each banking institution as well as making the most of instant access accounts and fixed terms up to 5 years. In short, you get access to the best interest rate deals, get 100% FSCS protection and save yourselves from a huge amount of administration moving money around various banks accounts over time. Even better, we can do all this for you.

TWP Wealth Management has a team of financial planners that assist our private clients with many aspects of wealth management and financial planning. For help and advice please speak to your usual TWP contact who can put you in touch with our financial planners.