The Bank of England today announced no change to the current rate of interest at 0.5%, but indicated that rises could come earlier than expected, as well as having to go higher than initially anticipated.

Andrew Montlake, Director at Coreco commented, “Although the Bank of England’s Monetary Policy Committee, (MPC) voted no change on Bank Base Rate by 9 votes to 0 today, the rhetoric has changed with a pretty bullish assessment of the likely path of interest rates. It looks more likely that there could be a rise in May.

“With GDP revised up to 1.8%, the faster UK growth means that they see a danger of the economy overheating and inflation pressures building. Therefore, there is a need for inflation to be brought down to the 2% target in 2 years rather than 3 years as previously announced.

“Taken together with signs of wage growth it looks as though there could be at least three or four rate rises over the next couple of years to achieve the Banks aims. It will be interesting to see how SWAP rates react, which will probably see further increases.

“Of course there is still the Brexit effect to contend with, which could yet see things change yet again, but the consensus at present is that rate rises are on their way.

“Whether lenders can keep rates at the current low levels due to competitive pressure alone remains to be seen, especially when you also factor in the end of the Term Funding Scheme in February. Indeed, we have already seen Halifax increasing products this afternoon and they are not likely to be the only ones.

“Our advice to borrowers, especially those looking at remortgaging in the near future is to review their options sooner rather than later.”

 

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