Confidence in base rate hold declines

New data published by Flagstone, the UK’s leading cash savings platform*, shows that the proportion of financial advisers and savings professionals at UK banks who believe the base rate will continue to hold at 5.25% has fallen significantly in the last six weeks.

Majority of savings professionals uncertain when rates will fall

In a survey canvassing the opinions of 153 independent financial advisers, wealth managers and senior savings professionals at UK banks and building societies, the Flagstone Base Rate Poll** found that 82% of respondents expect the base rate to remain at 5.25% at the next Monetary Policy Committee (MPC) review on 9 May.

While this proportion remains high, it marks a 15% drop in confidence since Flagstone’s last base rate poll. In Flagstone’s survey before the 20 March rate decision, 96% of respondents correctly predicted a no-change vote.

Alongside this uncertainty over how long the base rate can remain unchanged, expectations for sizable change before the end of the year are growing:

• Only 3% of financial advisers and wealth managers now expect rates to remain above 5% by year-end.
• Four in five (79%) of them expect the base rate to end the year at 4.5% or lower, indicating a cumulative fall of 75 basis points within the next six months. This would suggest an average 15 basis point reduction in each of the five remaining MPC votes of 2024.
• In contrast, 74% of respondents to Flagstone’s March poll predicted the base rate will end the year between 4% and 4.5%.

Falling rates to prompt moderate savings market contraction

A quarter (23%) of advisers are now saying that anticipated rate reductions are influencing them to advise clients to lock in current rates in longer-term savings accounts.

However, a third (33%) of savings professionals at banks and building societies expect that the number of savings options available to consumers will fall when the base rate begins to fall. Half (51%) believe that the range will stay the same, while only one in six (16%) predict potential savings market growth.

Consequently, almost half (46%) of savings professionals expect the size of the consumer savings market (which stands at £1.5 trillion currently***) to subsequently decrease.

Sticky inflation remains a sticking point

Inflation continues to be a sticking point for survey respondents asked to predict what level it may be at later in the year. For this survey, 54% of advisers say they’re not confident that inflation will hit its 2% target by the end of 2024. This contrasts very significantly with respondents to Flagstone’s March survey - 74% of whom were confident the 2% target would be hit by December.

Flagstone’s Co-Founder & CEO, Simon Merchant, comments:

“Once again, uncertainty rules over base rate change and this time more significantly than at other points in the recent past. Anecdotally, our banking and advisory respondents tell us that while the consensus leans towards maintaining the current base rate to ensure inflation targets are met responsibly, signs of economic resilience and even growth in some quarters are becoming harder to ignore.

“It's clear from base rate projections for the rest of the year that there's a cautious optimism buoyed by these ‘green shoots’ we’re starting to see. Still, the prevailing sentiment is to hold steady in the short-term and ensure any adjustments are made with a confident understanding of their long-term impacts.

“The impact of uncertainty over the base rate is starting to be felt in the savings market, with little consensus from savings professionals and advisers alike, on how rate reductions might impact saver choice and availability.”

Flagstone’s six-weekly base rate predictions poll is conducted in the days leading up to MPC base rate decisions to capture live sentiment and expectations among those setting the agenda for the cash deposits and cash management markets.

* Based on number of banks and savings accounts on the platform, and Trustpilot customer review ratings (4.6/5)

** Flagstone Base Rate Poll methodology: industry research canvassing opinions of 153 financial advisers, wealth managers and savings professionals at UK banks, 24-29 April 2024.

*** Source: FCA Cash Savings Market Review 2023

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