Blow to borrowers as interest rate predictions shift | Money

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The chancellor is not expected to change taxes in next week’s spring statement, it is understood.

This is despite higher-than-expected borrowing and the Bank of England's reduced forecast for growth this year, which were expected to put pressure on Rachel Reeves.

She will deliver her statement next Wednesday, against the backdrop of a faltering economy and tighter headroom when it comes to the fiscal rules she set herself in October.

Yesterday, Keir Starmer failed to repeat the chancellor's commitment not to extend the freeze on income tax thresholds during Prime Minister's Questions.

Thresholds were initially frozen by the last Conservative government until April 2028.

Kemi Badenoch asked the prime minister: "The chancellor promised a once-in-a-parliament budget, that she would not come back for more and in that budget, she said there will be no extension of the freeze in income tax thresholds.

"Ahead of the emergency budget, will he repeat the commitment that she made?"

Sir Keir responded by criticising the Conservative's record on the economy, mortgages and the NHS.

Every day last year around 35 British shops shut for good, according to new figures from PwC.

That's a total of 12,804 retail stores, leisure venues and service outlets closing across the year.

This is an improvement from 2023 - when 14,801 closed down - but still marks a net drop of 3,802 stores on Britain's high streets last year.

Zelf Hussain, restructuring partner at PwC UK, said retailers continue to face "significant challenges" in 2025.

"While household finances are improving, consumer confidence remains cautious," he added.

"Additionally, with substantial payroll cost increases and higher business rates taking effect in April, profit margins will remain under pressure, further straining high street retailers."

Coffee shops helped to drive new openings last year, with 105 launching a mixture of out-of-town and drive-thru outlets targeting consumers on the move.

Bank branches, on the other hand, are dwindling - PwC reported a reduction of 396 as they shift operations online.

By James Sillars, business and economics reporter

The prospects for future interest rate cuts this year have suffered a blow, according to the latest financial market forecasts.

LSEG data shows two further reductions, that had been fully priced in for 2025 ahead of today's rate decision, are no longer guaranteed as far as investors are concerned.

It is tight but 43 basis points (0.43 percentage points) of reductions are now expected by the end of 2025.

The figure had stood at 52 basis points yesterday.

A figure of 50 would represent two 0.25 percentage point interest rate cuts by the bank, taking Bank rate to 4% in December.

But sentiment has taken a bit of a hit since the minutes of the rate-setting committee's discussions were released at midday.

Governor Andrew Bailey has since signalled greater caution as uncertainty builds over the impact of Donald Trump’s intensifying trade war.

"We have to be quite careful at this point in how we calibrate our response because we're still seeing a very gradual fall in inflation. We need to accumulate the evidence," he said.

The chances of a rate cut at the next meeting in May are now below 50%, according to the data.

The outlook for borrowers is essentially that interest rates may be higher for even longer unless the trade war fizzles out, or the economy suffers so badly from the global implications that the Bank has to release the brakes.

More uncertainty means more waiting.

It's World Happiness Day today, so we're told.

Luckily, we've got glorious weather for it in much of the UK.

But if you live anywhere in Great Britain, you'll know you can't bank on sunshine to cheer you up.

You can on these five tips, though, according to Lord Mark Price, the author of Happy Economics and founder of workplace happiness consultants WorkL - who says there are sure ways to keep your staff smiling.

Here's what Price, a former Waitrose managing director and ex-John Lewis deputy chairman, has to say, in his own words...

Reward and recognition

Every member of an organisation should benefit from its success. A fair salary is essential - no amount of praise can compensate for underpayment. Your compensation structure should meet expectations and motivate employees to go above and beyond.

Information sharing

Withholding information can make employees feel undervalued and disconnected from the business. For a team to perform at its best, transparency is essential. Employees at all levels should have a clear understanding of the business, its strategy, performance, customers and competitors.

Empowerment 

Empowering employees means involving them in decision-making, valuing their ideas, and integrating their feedback into the company's strategies. Everyone brings unique experiences and perspectives to the table, and only by considering all views can a team achieve the best possible outcome. While individuals may not be perfect, together, the team can be.

Wellbeing 

Employee wellbeing encompasses physical, emotional, and financial health. Addressing all three areas leads to improved engagement and productivity. A positive workplace culture can reduce absenteeism, as engaged employees tend to be healthier and more committed.

Instilling pride

Employees who take pride in their work and workplace naturally become advocates, sharing their positive experiences with colleagues, potential hires, customers, and the community. Their pride will be evident when they talk about where they work. Building this sense of pride goes beyond motivational talks or performance reviews - it's about cultivating an environment where employees truly enjoy and take pride in their roles. 

And so...

Implementing these strategies not only enhances employee happiness but also drives organisational success.

A happy workforce is more productive, innovative and loyal, ultimately contributing to the company's bottom line.

We reported earlier this week that major supermarkets were rattled (share prices for Sainsbury's, Tesco and M&S took a dive) by a new strategy announced by rival Asda, with the grocery chain saying it would take a hit to profits to make prices cheaper and entice shoppers back through the doors.

Hints of a price war were much more positively received by readers, who said it was about time after years of price inflation.

A price war is long overdue. The supermarkets have been cashing in since COVID. Time to bring back value for the customer.

ShineyOne 

Oh dear, all the big supermarket chains are worried because Asda, for once, are doing the right thing: putting the customers first instead of fleecing them. 

Billy

We're already shopping in just Aldi and Asda. Tesco is way too expensive now, as is Sainsbury. 

Piratebarnabus

As part of our Money Problems series, consumer expert Scott Dixon helped a frustrated customer who said they received an incorrect Deliveroo order and weren't offered a replacement.

Readers were quick to offer up their own experiences.

What constitutes a "delivery"? A number of delivery services just leave packages on the doorstep. Is this right? 

Roger

I was missing items from McDonald's. They blamed the delivery driver but the bag was sealed. The delivery company blamed McDonald's so I got no refund or credit.

Peter

Had an issue with Uber Eats. Missed off all the chips and a drink from my order, driver wasn't bothered and told to contact Uber Eats. Only got £1.48 refund, which doesn't even cover the cost of the missed drink. 

Rob Hill

I ordered a box of wine from Deliveroo. It got marked as delivered. No one called or knocked at my door. I contacted them and they said I can't get a refund as driver went to wrong address.

Frank

New figures on wage increases were also cause for debate.

Today, the Office for National Statistics revealed there had been annual wage growth of 5.9% in the three months to January compared with the same period last year.

Again you report a spectacular rise in wages (5.9%), as you have been doing for the past few years, and again this doesn't match my reality and those of anyone I know. My pay rise was 2%, and lots of people I know didn't even get one! Who is getting these spectacular pay rises?

Unbelievable

Can you tell me who is getting the pay rises of 5.9% because it's certainly not in Barnsley.

Andy

Where's the strong wage growth? What sector? Because it's certainly not in the electrical industry. Wages have stagnated for skilled craftsmen. That's why we don't make anything. Unbelievable. Get the youngsters into apprenticeship, train them how to do carpentry, engineering, etc.

Monkee knows best 

The cost of bigger homes is rising faster than smaller ones, according to Halifax analysis.

The trend could make it easier for first-time buyers to take their first step on the property ladder - but harder to reach the next rung up. 

The average price of a flat increased by 3.2% in the year to January, compared to 4.5% for a terraced house.

"This has caused the gap between the rungs on the housing ladder to widen further, presenting a bigger challenge to those looking to make the step up," said Amanda Bryden, head of Halifax Mortgages.

"However, that only tells part of the story. Slower growth among smaller homes is helpful for first-time buyers, and we saw a big rebound in that market last year, with a fifth more stepping onto the ladder."

It should be noted that new-build flats paint a very different picture, with a 6.7% rise compared to the 3.1% average across all types of newly-built properties.

Flats account for about 27% of first-time buyer purchases in the UK.

This varies significantly by region, from 71% in London to just 4% in the East Midlands, Halifax said.

Disadvantaged children may be "priced out" of the same early years education as their peers in working families as the government expands free childcare, a report has warned.

Parents of children under two who are not in work or do not earn enough to be eligible pay £105 a week more for a part-time nursery place, the Coram Family and Childcare charity has suggested.

Working parents of children older than nine months are now able to access 15 hours of funded childcare a week, reducing the cost of a part-time nursery place (25 hours per week) to £70.51 per week on average in England.

But families ineligible for funded childcare will fork out £176.27.

Education Secretary Bridget Phillipson said the survey "highlights the real difference the expanded childcare entitlements are making" and emphasised funded childcare hours will increase from 15 to 30 hours a week in September.

"We're delivering much-needed improvements for parents, making childcare more affordable, expanding school-based nurseries, and improving early language and maths support."

Reaction is coming into the Bank of England's decision to hold interest rates, with the Unite union pouring scorn on the Monetary Policy Committee's "inertia".

Cost of living

"Inertia from the Bank of England isn't going to help an economy on life support," general secretary Sharon Graham says.

"Rising inflation is a concern, but as we've seen throughout the cost-of-living crisis, high interest rates are a blunt stick hitting workers and their families the hardest."

Professor Ashwin Kumar, director of research and policy at IPPR, says the hold leaves the British economy in a "limbo period".

He said there is a time lag between the announcement of tax rises and the fruits of higher spending, which has "contributed to negative sentiment". 

"We need to see and hear more about the government's plans for investment in transport and infrastructure because these are crucial to economic growth."

Mortgages

Jenny Ross, editor of Which? Money, says the decision will come as "a disappointment to both prospective buyers and those remortgaging".

Homeowners coming to the end of their fixed rate terms will likely face "considerably higher" monthly repayments than they're used to, she says.

But Simon Gammon, managing partner at Knight Frank Finance, is more optimistic as the mortgage market heads into the spring.

Lenders have created more generous underwriting criteria and the new season marks the start of a new financial year with fresh lending targets, he says.

"All this can lead to an increase in competition and push further reductions in pricing."

Kevin Roberts, managing director of L&G's mortgage services business, agrees the mortgage market has "had a strong start to the year". 

He says there has been a 51% year-on-year increase in first-time buyer mortgage searches.

"There are plenty of reasons for prospective homebuyers to be optimistic, with healthy competition among lenders and the return of sub-4% mortgage rates."

Savings

This is "good news for savers", says Mark Hicks, head of active savings at Hargreaves Lansdown.

They can expect "another month of robust rates", with the best fixed savings deals hanging on above 4.5% and the best easy access at 4.75%. 

Competition in the cash ISA market also "remains impressive", he adds, so you can still get 5% on easy access savings as the deadline approaches to take advantage of your ISA allowance.

But Rob Morgan, chief investment analyst at Charles Stanley, says today's decision "will make little difference" as banks set rates according to expectations, which haven't altered. 

"Two or three more cuts are still anticipated before the year end."

Today's interest rate decision was widely anticipated - and there should be "barely a ripple" in the mortgage market.

That's according to David Hollingworth, associate director at L&C Mortgages and Money blog regular.

The Bank of England has consistently suggested interest rates could fall further, adding to the three cuts since last summer.

As a result, fixed rates have "already priced in further reductions", Hollingworth added, but this is still expected to be a gradual process.

Here's his breakdown of what this all means for your mortgage.

Tracker and variable rates

There will have been many hoping to see another rate cut to feed into their mortgage rate. 

Not all deals guarantee to mirror base rate movement and lenders can adjust standard variable rates as they like. 

However, a hold in base rate is likely to mean they will have longer to wait before they see any further payment reductions.

Fixed rates

There's a huge number of borrowers coming towards the end of their current fixed deal.

They could be in quite different circumstances.

Those that fixed for a couple of years during the peak of the mini budget volatility could be delighted to see the back of their deal.

On the other hand, there are still swathes of borrowers edging toward the end of an ultra-low fixed deal that has given them protection from the rate hikes over the past five years.

They will be bracing themselves for a hike in payments despite the improvements in the market, as rates have edged back down. 

Shopping around for the best rates and taking advice will help them to manage the inevitable rise in rate.