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How FinTech can help in response to the BoE’s interest rate rise

By Gaia Lamperti

June 16, 2022

  • Bank of England
  • BoE
  • Crown Agents Bank
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The Bank of England (BoE) will hike interest rates for the fifth consecutive monetary policy meeting, in an effort to rein in soaring inflation against a backdrop of slow growth and a deteriorating currency.

Previously, in May, the raised its based rate to 1%, its highest level for 13 years, but warned that the British economy risks falling into recession. The decision from the latest meeting on Thursday this week is to raise interest rates to 1.25%. Inflation rates rising will limit peoples’ ability to add to savings and pay off debt.

“Despite a weakening economy, inflation remains at worryingly inflated levels globally, a fact acknowledged by both the Fed and Swiss National Bank in the past 24 hours,” commented Chris Wilgoss, Head of Global Markets Treasury at Crown Agents Bank. “The pound had weakened in recent days against the weak data and rampant dollar. It moved up immediately before the announcement as markets started to factor in the chances of a 50bp move and indeed 3 of the 9 members did vote for the large move. GBP has since given up those recent gains.”

Digital tools coming to the rescue

However, digital tools can help consumers deal with rising inflation. The continued expansion of the FinTech sector has made it easier for consumers to access banking services that can help during periods of high inflation and digital banking tools are enabling financial inclusion to segments of society who previously did not have access to the same services. For consumers making less than $100,000 annually, fintech saves them $360 a year in interest and bank fees, according to research conducted by The Harris Poll

An easy-to-use technology that could help consumers better handle high-interest rates is Variable Recurring Payments (VRPs). Online payments processing solution GoCardless has shared new research about how customers are already feeling the squeeze, with over half (57%) of Brits struggling to save due to the rising cost of living. Younger consumers have been hit especially hard: 30% of Gen Z and Millennials say they find it difficult to budget and manage their money every month, compared to 26% across all age groups.

But there is hope on the horizon. GoCardless found that half of consumers would welcome new technology that automatically moves their money from one account to another with a higher interest rate (53%) and to pay their debts (50%). “Today’s interest rate rise will put an even tighter squeeze on personal finances. Luckily, next month we’ll see the introduction of Variable Recurring Payments and ‘sweeping’, a new form of payment powered by open banking,” said Duncan Barrigan, Chief Product Officer and Chief Growth Officer at GoCardless. 

“Sweeping will allow you to set up automatic recurring transfers based on parameters of your choosing, moving money between the accounts you hold at different financial institutions. This includes, for example, money from your bank account to your savings and investment accounts, and helps you put spare money to work faster – without lifting a finger. This will be a lot easier after VRPs are introduced.”

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