Interest rates: Adapting your wealth strategy

We know the Bank of England’s (BoE) decision to lower interest rates to 4.25% this week will have short-term implications for borrowing and savings rates. But it’s also worth thinking through how the trend to lower rates could affect your long-term wealth strategy.

It’s important to look at the cumulative effect on your finances over time, even though the individual interest moves tend to be small. And when it comes to arranging your wealth accordingly, we believe it’s important to take your time and carefully consider all your options.

Greater choice for your wealth strategy

While the Bank of England base rate has been falling, it still remains much higher than a few years ago – it was below 2% for 13 years from January 2009.

Sub-2% rates rather limited the options for growing your wealth over the long term. For example, savings accounts, while providing security and peace of mind, were unable to provide substantial growth.

But today, with interest rates unlikely to return to those depths for the foreseeable future, there is greater choice when managing your money.

Using savings accounts to provide short-term liquidity could continue to provide relatively attractive interest rates. Investment strategies could benefit from increased public spending – potentially good for share prices. And lending costs could reduce.

Crucially, putting in place the most appropriate mix of these options could support an overarching wealth strategy and help support any near-term ambitions such as a property purchase or passion project.

The value of investments and the income from them could fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs. Credit subject to status. Exclusions may apply. Over 18s only.

What next for UK interest rates?

Slow economic growth in the UK has contributed to annual inflation gradually falling this year, from 3% in January to 2.6% in March.

That’s still above the BoE’s 2% target. But for context, it’s down from the dizzying heights of 11.1% for the year to October 2022 – its highest level for 40 years.

This has enabled the UK’s central bank to lower interest rates – carefully and cautiously – since last August.

US President Trump’s extensive tariffs on key trading partners cast a shadow on what might happen next with interest rates. But they are still expected to fall further this year in the UK.

Currently, markets expect more interest rate cuts from the BoE – two more this year. This expectation was recently backed up by the International Monetary Fund (IMF) in its latest forecast. The IMF also expects UK inflation to drop to 2.2% by 2026.

While these are predictions, one thing is more certain. Whether interest rates fall quickly, slowly or not at all, a solid, holistic, long-term plan for your wealth could benefit you and your family enormously.

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