Bank of England warns that interest rates may stay above 5pc until 2026

For mortgage holders nearing the end of their fixed-rate deal in the second half of this year, there is an anticipated increase of around £220 in monthly payments. Mark Harris, the CEO of SPF Private Clients, describes this as a real shock for borrowers. The Bank of England predicts a modest decline in house prices in the coming months, as more landlords choose to sell their properties due to rising mortgage costs. While the rising interest rates can be burdensome for borrowers, it also means better returns for savers. Following the Bank’s announcement, Nationwide and HSBC were among the first providers to improve their savings deals.

Nationwide announced an increase in the annual interest rate of its “Triple Access Online” cash Isa, from 3.5% to 4.25%, allowing savers to invest up to £20,000 tax-free each year. HSBC, on the other hand, will raise the rates on its instant-access “Premier” savings accounts by 0.25 percentage points to 2.25%, as well as increasing rates on some other accounts to 2%. The City regulator previously raised concerns about banks failing to fully pass on the benefits of higher rates to savers. However, the Bank of England governor, Andrew Bailey, stated that this situation is now changing, with banks “pretty fully” boosting savings rates.

Data from MoneyFacts reveals that the average interest rate paid on instant access accounts rose from 2.35% to 2.8% between June and July, representing an increase of 0.45 percentage points, which is almost in line with the Bank’s 0.5 percentage point increase in June. In comparison, when the Monetary Policy Committee (MPC) initially increased the base rate from 0.1% to 1.25% between December 2021 and June 2022, the return to savers only rose from 0.1% to 0.27% over the same period. Threadneedle Street officials also noted that wage increases have been stronger than expected and that the risks of a wage-price spiral are now becoming more apparent.