Hints that interest rates may rise
Data issued at the end of January showed that the final quarter of 2017 saw the economy grow by 0.5%. The Bank of England has now hinted that the speed of interest rate rises could accelerate if the outlook stays positive.
While Mark Carney and his colleagues voted to keep interest rates on hold at 0.5% at their most recent meeting, they did suggest that the rates will need to rise “earlier” and by “a somewhat greater extent” than previously thought. As a result of the Bank’s comments, the value of the pound jumped by about 1% against both the dollar and the euro.
When the Bank put the rates up for the first time in ten years last November, it implied there could be two more increases of 0.25% over three years, but it now looks as if there could be a third one and earlier than anticipated. There is rumour the next rise could come as soon as May.
As well as the growth in the economy, the rising numbers of people in work have contributed to this idea. 32.2 million individuals were in employment in the three months to November 2017, marking the highest total since 1971 when records began and a joint high record employment rate of 75.3%. Whilst average earnings grew 2.5% in the year to November, the growth of pay was below the rate of inflation for the tenth month in succession. The Bank does now think, however, that wages will start to increase.
If interest rates are increased, this will unquestionably affect those families who currently have standard variable rate or tracker rate mortgages. Of the 8.1 million households in the UK, approximately half are thought to be on these types of mortgages and interest rates would be likely to rise to match the Bank of England rates.
On the plus side, however, an increase rate rise would be great news for savers as the High Street banks would ordinarily follow suit.
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