About that interest rate rise…

November 10, 2014

A few months ago, we published a blog post about imminent interest rate rises. At the time, speculation in the industry was that we could see a rise before the end of 2014; before the General Election in May 2015 at the very latest.

Well, as is the nature of these things, there’s been a bit of a shift in opinion so we thought we’d bring you up to date.

The Bank of England is now hinting at a later rise in interest rates due to low inflation, weak wage growth, the recent stock market wobble, global concerns and growth fears. They maintain that recovery has remained strong, but that it is slowing down in the UK.

Whilst unemployment figures were initially a major indicator as to when interest rates might rise, the Monetary Policy Committee (or MPC, the team at the Bank of England who decide when the rate rise should happen) is now monitoring a range of economic indicators to decide when the time is right for an increase. In September, inflation dropped to 1.2%, its lowest rate in five years, and this is one of the major factors contributing to a change in interest rate rise predictions. The Bank’s chief economist Andrew Haldane is ‘gloomier’ about the outlook for Britain’s economy.

In August, two members of the MPC voted for a rise in interest rates, fuelling the speculation that a rise was coming sooner rather than later. This pattern continued in September and October. However, bearing in mind the latest figures on the state of the UK economy, it’s expected that most members of the MPC will prefer to err on the side of caution and delay the rise a little longer. Comments from the Bank appear to suggest that rates will not rise from the current level of 0.5% until well into next year, even after the General Election.

However, it’s worth remembering that the UK is looking fairly good economically on the world stage. Barring any major global downturn, UK growth is expected to hold up relatively well over coming months, so we suspect the interest rate rise is still coming, just a little later than planned. That’s an expectation though, not a promise. There is no certainty in this game!

What does that mean for you?

Given the changing nature of predictions about when an interest rate rise is likely to happen, the best thing you can do is keep your ear to the ground and prepare.

A change, when it does come, is still likely to be gradual and limited (we think it’s unlikely that rates will rise above 1% by the end of 2015). However, the deferred rise does give you a bit longer to get your affairs in order. Pay off any debts that you can and get yourself into a habit of saving so you’re in the best position to benefit from any rise. Whenever that may be!

If you have any questions about this article call Bob Wilson at GreenSky Wealth on 01603 340800.


This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

GreenSky Wealth Ltd is an appointed representative of Financial Limited which is authorised and regulated by the Financial Conduct Authority. FCA No: 516410