It is unlikely interest rates will fall steeply next year, with the Bank of England more likely to lower them gradually.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said rates were likely to stay high next year.
She explained savers would have “fond memories” of 2023 with interest rates at the start of the year sitting at 3.5 per cent, and by the start of December having reached 5.25 per cent.
“Even in January, we were cheering savings rates at their highest since 2008, with the average easy access account offering 1.56 per cent and the average one-year fix 3.51 per cent - according to Moneyfacts.
“Over the year, they climbed significantly, and although we’re past the peak, at the time of writing the average easy access account still offers an average of 3.17 per cent and 1 year fixes 5.15 per cent.”
Coles said it was likely interest rates would remain high for a large portion of next year.
“The OECD says they could stay where they are until the end of 2024, but the market expects some relief by the middle of the year.”
But she added not to expect rates to come down in a hurry - “we’re likely to see cuts made slowly, in tiny increments: they’re in no hurry to get back to the ultra-low rates we’ve become used to in recent years”.
This means it is likely the peak for savings is coming to end but given that there is no rush to cut rates, there should still be strong savings deals for a good portion of the year, Coles said.
For everyone else, 2023 will be remembered as the year which took a horrible toll on people’s finances, with a combination of higher rates on debt, high inflation and a slow mortgage market.
Inflation started to come down from October but it stated in double digits for the first three months of the year.
“More to the point, [inflation’s] impact is cumulative, so while prices are up 6.7 per cent in a year, they’re up 16.2 per cent in two years,” Coles explained. “And that’s before you factor in higher taxes and interest rates. It’s no wonder so many people are running on empty now.
“The HL Savings & Resilience Barometer showed that if we carried on spending as usual, more than a quarter of us would be spending more than we were earnings – so we’d have to make serious cuts, spend our savings, or go into the red.”
Mortgages and the wider economy
The mortgage market also had a tough year.
Anyone sitting tight on a fixed rate will have been protected from rampant rate rises, Coles explained, but for anyone who had to remortgage, the damage will have been done.
The HL Savings & Resilience Barometer found that as we went through this year, more than a quarter of those with a mortgage spent more than a quarter of their income on their monthly payments.
