Bank of England keep interest rate at 5.25%

Bank of England keep interest rate at 5.25%

21 Sep 2023

Felix Currell, Senior Consultant, XPS Investment said: “Following the surprise fall in inflation announced yesterday, the Bank of England today announced that base rates will not increase and instead remain at 5.25% for the time being. Prior to the inflation announcement, markets were expecting a further increase in the base rate but the recent data illustrates that inflation may be being brought back under control. The Bank of England’s decision offers hope to borrowers looking for a return to a low interest rate environment.  

For pension schemes, longer-term gilt yields continue to remain volatile and are at similar levels to those experienced during the peak of the gilts crisis, whilst also being more than 1% higher than the lows of November 2022. However, these yield rises have occurred over a prolonged period enabling actions from pooled fund LDI managers and Trustees to take place in a much more controlled manner, supported by larger collateral buffers in line with new regulatory guidance.

There are still a number of pressure points within the UK gilt markets including increased supply (through significant extra borrowing expected by the UK government over the next few years and quantitative tightening) and a potential reduction in demand for new gilts as defined benefit schemes approach a point of having hedged most of their liabilities with existing gilt holdings. Vigilance is key for trustees to assess and implement their hedging needs in a volatile market.”