Why today’s Bank of England interest rate announcement is not good news for your pension

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Bank of England: Victoria Scholar discusses interest rates

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The UK’s main interest rate, set by the Bank of England’s Monetary Policy Committee (MPC), had been at an all-time low of 0.1 percent since the pandemic began. But as the economy reopened and increasing prices and demand drove up inflation, the Bank had come under increasing pressure to lift interest rates. So today it was widely expected that rates would rise to 0.25 percent.

Recent comments from the Bank’s governor Andrew Bailey, which suggested the Gopvernment would have to “act” to bring inflation under control, did little to fuel fears of a rate hike.

But instead, the Bank has kept the rate unchanged. Minutes of the latest decision showed that of the nine members of the Monetary Policy Committee, seven voted in favour of keeping rates unchanged.

The Bank said: “The committee judged that… it would be necessary over coming months to increase Bank rate in order to return CPI inflation substantially to the 2% target.”

Hover, sources have warned a hike is likely in the “coming months” to cool price rises. 

The UK is now not expected to return to its pre-Covid level until the first quartyer of 2022, against a previous prediction of the end of this year.

The Bank said: “Growth is somewhat restrained by disruption in supply chains. Alongside the rapid pace at which global demand for goods has risen, this has led to supply bottlenecks in certain sectors.

“There has also been some signs of weaker UK consumption demand.”

And the announcement comes after the Bank acknowledged that inflation, currently on 3.1 percent, could peak at four or even five percent, well about its two percent target.

But what does all this mean for your pockets? Will homeowners and borrowers will be spared from any major changes, the move to keep the rate unchanged is still bad news for some – particularly for pensions and household costs.

Household finances

Denise Ko Genovese, senior personal finance editor of NerdWallet warned the move was “still not good news for households.”

She told Express.co.uk: “The cost of living is continuing rising at a rapid rate. And if inflation continues to spiral, the BoE could still be forced to increase base rates much faster than expected – and this could be an even bigger blow for vulnerable households.

“As such, it is vital that the BoE lays out a clear plan for interest rates in their monetary policy report. So too, must it set out a strategy to work closely with the Government to address rising inflation.

“Of course, the supply chain and energy crises have complicated matters, but action must be taken to begin restoring consumer confidence and get the UK economy back on track.”

She added: “For now, households should remain calm, and seek help where necessary.

“There are debt charities such as StepChange on hand to help individuals in financial difficulty. Further, people can speak to creditors about possible repayment options, if they are concerned about meeting deadlines.

“Seeking help as early as possible will help to minimize financial damage later down the line.”


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Andrew Megson, executive chairman of My Pension Expert said “UK savers are unlikely to celebrate this decision.

“After all, with inflation continuing to rise, individuals will likely feel that they have less money to spend on long-term financial goals and turn their focus on immediate financial commitments instead, like mortgage repayments or household bills.

“Whilst understandable this could cause major financial issues later down the line and could ultimately result in lower pension contributions.

“Under such tumultuous economic circumstances, savers must seek independent financial advice from experts who will be able to offer greater clarity on the situation, and help savers develop a sustainable savings plan to suit, whilst minimising a negative impact on existing financial circumstances.

“Such action will be vital in helping Britons to regain control of their financial futures.”

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