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Renewed inflation spectre haunts the MPC despite rate cut

Kevin Brown, savings specialist at Scottish Friendly, comments on the Monetary Policy Committee’s rate decision today: “As was widely expected the Monetary Policy Committee (MPC) has cut its base rate, despite some significant potential headwinds for the UK economy, which threaten to reignite the spectre of inflation hanging over the economy. These headwinds come in the form of a big spending UK Government Budget and a US election result that looks set to be hugely consequential for the global economy and inflation expectations.

“Households will take some comfort that debt costs are getting a bit cheaper, but this should be taken with a pinch of salt as signals widely seem to suggest we might soon have renewed bouts of inflation. The MPC look likely to take a more cautious approach moving forward, as rate setters attempt to navigate the fine line between economic growth and inflation.

“Amidst all this, the message for households here is that having a rainy-day fund is still essential where possible. Beyond that, interest rate expectations are still falling which means long-term savings are providing ever-diminishing returns. Anyone considering their long-term savings might want to start looking in earnest to investing their money as an alternative to holding it in cash.”