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Bank of England Interest Rate Unchanged in Light of Falling Level of UK Inflation; Industry Reacts

The Bank of England has officially revealed that it plans to leave interest rates unchanged – ending a consecutive streak of 14 base rate hikes. 

On Wednesday 20 September, the Office for National Statistics revealed that inflation in the UK fell to 6.7 per cent in August – from 6.8 per cent in the year to July. While the size of the drop is minimal, the news was significant because most experts had predicted UK inflation figures would go back up – which could have influenced the Bank of England to increase its base interest rate for a 15th time.

While the figure means that the cost of goods continues to increase, it does mean that the rate at which prices grow has slowed. Core inflation also fell by 0.7 per cent since July, to 6.2 per cent in August. 

Many experts had expected inflation to rise due to a significant increase in fuel prices. Petrol rose by 5.3 pence per litre between July and August 2023. A slowdown in the inflation of food prices appears to have played a significant role in the overall UK inflation not rising alongside the increase in fuel prices.

Savings rates haven’t kept up with hikes

While the Bank of England has decided against a 15th consecutive increase to its base interest rate, it remains unchanged since the 14th increase. In light of this, one area that UK customers may have expected to benefit from is seeing the interest rates on their savings accounts increase – in the same way that interest rates have risen for mortgages and loans.

However, smart money app Plum recently revealed that the average Brit is receiving 3.3 per cent interest; equating to 1.95 per cent beneath the Bank of England’s base rate.

Andy Mielczarek, founder and CEO of SmartSave
Andy Mielczarek, founder and CEO of SmartSave

Andy Mielczarek, founder and CEO of fixed-term, fixed-rate savings account SmartSave, a trading name of UK digital bank Chetwood Financial, discussed how much a slight drop in inflation will really impact people across the UK: “A small and unexpected bonus, given much of the reporting beforehand was that we were in for a slight uptick in inflation. Nevertheless, the data illustrates how far we still have to go before cost-of-living pressures ease on UK households.

“With inflation remaining stubbornly high, the money most people have in savings is losing value in real terms. Even though interest rates have risen notably since the end of 2021, and may again tomorrow, millions are not seeing any significant benefits from this. This is because too many banks are still failing to pass better rates onto customers, particularly where easy access and current accounts are concerned.”

The government still needs to support pension planners 
Lily Megson, policy director at My Pension Expert
Lily Megson, policy director at My Pension Expert

Lily Megson, policy director at My Pension Expert, said: “Unexpected easing of inflation might sound optimistic on paper. But savers still face uncertainty. One thing is for sure, however: in the coming months, pension planning will be far from plain sailing – savers urgently require support.

“To help savers successfully navigate these choppy waters, the government must work with financial providers to ensure the right support, such as access to independent financial advice and reliable educational resources, is readily available.”

Becky O’Connor, director of public affairs at PensionBee, also explained why affording the cost of living will remain difficult for those already receiving their pension: “For pensioners, it looks almost a dead cert that the state pension is set to rise in line with earnings rather than inflation next April, as the triple lock dictates that it increases with whichever is the highest of earnings, inflation or 2.5 per cent. That’s unless the Government chooses to break or manipulate the lock to make the rise more manageable to the public purse.”

Cost of living pressures to continue for consumers
Becky O’Connor, director of public affairs at PensionBee
Becky O’Connor, director of public affairs at PensionBee

O’Connor also explained that the fall in inflation won’t translate into a significantly easier ride for anyone in the UK:

“Slightly lower inflation is unlikely to make people feel more comfortable with their household budgets, as we head into Autumn and the season of higher energy bills. 

“Those facing higher mortgage rates or rent bills, or who have not received an increase in their wages in line with the average of 7.8 per cent in the year to July, may feel less able to cope with still relatively high ongoing inflation.

“Having the ability to save or invest regularly may come down to whether someone is paying rent or a mortgage or has experienced a pay rise. For many, saving for the future remains on the back burner, while meeting short-term living costs remains challenging.”

How could high oil prices impact proceedings?
Kevin Pratt, business expert at Forbes Advisor
Kevin Pratt, business expert at Forbes Advisor

Kevin Pratt, business expert at Forbes Advisor, warns that heightened oil prices may prove a sticking point before we see the cost of living easing: “Businesses are braced for further increases in input costs this autumn because of the uptick in oil prices, which started in August and has continued at pace in September – just ask anyone who has filled their car, van, bus or truck in recent weeks.

“Petrol and diesel are edging closer to £1.60 a litre than the £1.48 recorded by the ONS in August, so while the news of a fall in the headline rate of inflation is cheering, it doesn’t fully reflect what’s happening in the real world in real-time.”

However, David Stritch, market analyst at payments fintech Caxton, suggests that, overall, long-term signs are still positive: “Oil prices are now at their highest level since November 2021, increasing prices at the pump by around seven per cent since the beginning of August.

David Stritch, market analyst at payments fintech Caxton UK interest rate
David Stritch, market analyst at Caxton

“The early feed-through of this was seen in headline inflation print, with transportation costs contributing 0.22 per cent YoY to the overall inflation figure in August and representing the most aggressive segment of price increases.

“Some indicators of Oil prices are flashing that the commodity is overbought at current prices, but resilient US manufacturing PMI figures and a seemingly normalising Chinese situation could keep Oil supported at a high price into Q1 2024.

“Oil-induced inflation usually is seen as transitory by Central Banks and overall is unlikely to exert a serious lasting effect on the inflation rate.”

Future expectations
Russell Shor, senior markets specialist at FXCM UK interest rate
Russell Shor, senior markets specialist at FXCM

In light of steadying interest rates and falling inflation, Russell Shor, senior markets specialist at retail foreign exchange broker FXCM, commented: “UK inflation’s rate of change is showing deceleration. This suggests a continued moderation of UK inflation.

“Inflation is dropping in various categories. Items like household goods and vehicles, which previously drove up core inflation due to supply chain issues, have seen significant price decreases in recent months.

“While food inflation is not a primary concern for the Bank of England, it is also declining rapidly. Recent reductions in producer prices suggest that food inflation is likely to end the year lower than current levels.”

Nicholas Cawley, senior strategist at DailyFX UK interest rate
Nicholas Cawley, senior strategist at DailyFX

Nicholas Cawley, senior strategist at DailyFX, also offered his take on what the signs may show fo the future of inflation and interest rates in the UK; and how this future might impact the average consumer: “Falling inflation will help the UK consumer, not just in moderating price pressures for food and goods, but also for those who are either looking for a mortgage or those who are re-mortgaging.

“If potential property buyers can see that the BoE is not going to keep increasing rates, then they can make a more informed and confident decision.

“It is looking increasingly likely that the UK has passed peak inflation and that the accumulative effects of prior interest rate hikes will continue to feed through and further dampen, still uncomfortably high price pressures.”


  • Tom joined The Fintech Times in 2022 as part of the operations team; later joining the editorial team as a journalist.

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