The Fed raised rates and the Bank of England held: what it means for UK investors

Five minutes a week that makes you smarter and calmer about your own money — plus a look at what I’m actually doing with mine…

Friday 18 September 2026

I held this week’s letter back because on Wednesday and Thursday the two most important central banks in the world both had a decision to make, and for once they made different ones.

America put rates up, the first rise in three years. The Bank of England thought hard about it but didn’t.

So this issue is about interest rates: what went up, what didn’t, and why none of it should change what you do with your money.

On Wednesday the Federal Reserve raised its rate by a quarter of a point, to a range of 3.75% to 4%. All twelve voters agreed. It’s the first rise since July 2023, and the new chairman, Kevin Warsh, didn’t soften it: “The plain fact is that inflation is too high and has been for too long.” Expect at least one more rise this year.

Shares dipped on the day, then rose 1.1% on Thursday. By Thursday night the S&P 500 stood at 7,638, higher than before the decision.

What it means for you: The market doesn’t treat a rise everyone expects as news. It had already put it in the price. If you’re waiting for rates to settle before you invest, you’ll wait a long time, because they never do.

On Thursday the Bank kept Bank Rate at 3.75%, where it has sat since March. Six members voted to hold and three voted to raise it to 4%. Inflation rose to 3.1% in August, from 2.9% in July, mostly because of petrol. The Bank now expects it to reach about 3.75% by the end of the year and to pass 4% early next year, with oil up 36% since July and wholesale gas up 78%.

The Bank says it “stands ready to act as necessary”. In other words, a rise is on the table.

What it means for you: If you have a mortgage, the cut you were waiting for isn’t coming. The average two-year fix was 5.63% in early August and 5.73% this week, and that was before the Bank said a word. If your deal ends in the next six months, the case for locking in now is stronger than it was a month ago.

For your investments, nothing. Rates at 3.75% or 4% make no difference to whether Unilever sells soap or Apple sells phones. They change the price people will pay this month for a share of the business, which only matters if you’re selling this month.

Moneyfacts reckons about £300 billion is sitting in UK accounts that pay no interest at all. With inflation at 3.1%, that pile loses about £9 billion of buying power a year.

What it means for you: If some of that is yours, the answer isn’t a better savings account. Even the best cash rates only just keep up with prices. Keep what you’ll need in the next few years in cash, and put the rest to work in shares, which have returned about 10% a year over the long run. That’s the whole strategy, and it fits on a beer mat.

You can see every position I hold, and what each has done, on the portfolio pages, refreshed with last night’s prices: timswealthletter.com/my-portfolio

My observation this week: rates went up and the market went UP, not down. The increase was already priced in, and the market rose on the confirmation. Markets hate uncertainty.

None of it changes what I hold. My S&P 500 fund is up 82% since I bought it in May 2023, and it has sat through more rate decisions than I’ve counted. The rate I care about is the 0.07% the fund charges, not the 3.75% the Bank sets.

What a rate rise does change is the price of the businesses I want to buy. Higher rates knock share prices before they touch profits, and that’s when a good company gets cheap. My screen has eighty-six businesses that pass Buffett’s tests and only nine cheap enough to buy. A few more weeks like this one and that nine gets longer.

Full members get the nine names, the prices I’ll pay, and the first purchase when it happens.

Free readers get the thinking. Full members get the specifics.

The number on your savings account isn’t what you’re earning. What you earn is that number minus inflation.

Bank Rate is 3.75% and inflation is 3.1%, so cash held at the Bank’s rate earns about 0.6% a year in real terms, which is why three of the nine committee members think 3.75% isn’t high enough. A high-street account at 1% earns you minus 2%: the balance goes up and what it buys goes down.

Shares have returned about 10% a year over the long run. Take 3% inflation off that and you’re still making 7%. Take it off the best cash rate in the country and you’re making about one.

Safe from what? A bank balance can’t fall, and that’s the whole of the argument. But £10,000 in cash at 1% with inflation at 3.1% buys about 2% less every year, and after ten years it buys 19% less. Nobody sends you a statement showing the loss, so it doesn’t feel like one, but it is.

Shares fall, sometimes a lot, sometimes for a couple of years. Then they recover, and they always have.

Cash is the right home for money you’ll need in the next few years. For everything else, it’s the expensive option.

Basis points — one basis point is a hundredth of one percent, so 25 basis points is a quarter of a percent. Central bankers use them because “rates went up 0.25%” is ambiguous: a quarter of a percentage point, or a quarter of one percent of the rate? Useful for fund fees too. A fund charging 50 basis points is charging 0.5% a year, seven times the 0.07% I pay for mine.

Book of the week: The Simple Path to Wealth, by JL Collins. It began as letters to his daughter, who found money boring and wanted nothing to do with it, and it’s the clearest case I know for owning one low-cost index fund and getting on with your life. If this week’s rate news left you wondering whether you should be doing something, Collins’ answer is no, and the book is about why that’s the hard part. Buy on Amazon.

Know someone with a pile of cash “waiting for the right moment”? Forward this to them.

See you next week.

Tim

I am not a financial adviser. Nothing here is personal financial advice. Please do your own research before making any investment decisions.