The uncertainty of the interest rate rise

WITH the general consensus amongst most economy experts being that interest rates are set to rise at the turn of the new year, the announcement that they could actually be cut instead from the Bank of England’s chief economist, Andrew Haldane, certainly came as a surprise.

This is only a slight possibility and the odds are that rates will rise but what has led to one of the country’s leading economists to turn the outlook on its head?

Mark Weston from Perry Bishop & Chambers discusses.

With oil prices continuing to fall, China’s ‘Black Monday’ stock market crash and the US Federal Reserve’s decision to keep its own base rate at 0.25 per cent, Mr Haldane and many other economists believe that hiking the UK Bank Rate could hinder the ongoing recovery.

The latest figures from the Office for National Statistics (ONS) show that inflation fell back to zero after its brief respite at 0.1 per cent, and whilst it remains way below the Bank’s target of two per cent, a rise could be less likely to happen to help encourage consumer spending, thus boosting inflation.

However, the growth of real wages, which is your income after taking inflation into consideration, is at its fastest rate since the financial crash which most economists believe is a key reason that the Monetary Policy Committee should consider increasing interest rates.

With the MPC due to have three more meetings to decide on what to do with interest rates before the turn of the new year, the uncertainty surrounding the global market and the UK level of inflation means that an absolute decision on the prospective outcome for interest rates is nearly impossible to reach.

How real wage growth acts in the coming months will play an important role in the outcome of the MPC’s decisions. If it continues to pick up, the likelihood is that the Bank of England will indeed increase the rates in early-2016, albeit still a little earlier than first thought, after the MPC announced that inflation should return to the Bank of England’s target of two per cent by 2018.

Chief European and UK economist at IHS Economics, Howard Archer, believes that the Bank of England and MPC will “edge up interest rates from 0.5% to 0.75% in February 2016” and that the likelihood of a rise happening before then has “waned markedly”.

So, with two of the country’s top and most respected economists both sharing differing views, it is clear to see why the future of interest rates is still under question, which is why many home-owners and first-time buyers are taking advantage of the current record low mortgage rates to secure a deal before interest rates do rise, making it all the more important that you seek advice from a professional mortgage adviser when discussing your next steps.

Mark Weston is from Perry Bishop & Chambers – for further information call: 01285 655355 Email: mortgages@perrybishop.co.uk

or visit: perrybishop.co.uk/services/mortgages

Your property may be repossessed if you do not keep up repayments on your mortgage.

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