Despite initially refusing, the Bank of England have said that the “next move in policy is going to be an increase” to the Bank Rate. BoE Governor Mark Carney, spoke in front of MPs on the Treasury Select Committee late last month, and said that “this is still an economy that requires monetary stimulus to grow above trend and bring inflation back to target.”
Interest rates have been at a record low of 0.5% since March 2008, but this is set to change in autumn 2015. The Monetary Policy Committee will be focusing on raising rates, “rather than adding additional stimulus”, with the main priorities being “the pace, timing and degree of tightening”. Raising interest rates is an unusual and serious decision, and two members of the MPC have reportedly called for an immediate rise of 0.25%. This is proving to be a contentious issue however, with some MPs commenting on a potential rise in very negative terms. Carney himself has said that the BoE is “absolutely blind” to politics, in order to prove that the decisions of the MPC are wholly separate to that of the Government’s and the next General Election.
Many are wondering what this will mean for their own finances and mortgage. Those on a variable rate mortgage should be aware of a rise as it will directly affect what they pay. As the rise is several months away, those with a variable rate mortgage are advised to calculate the difference they could be paying after an increase, so they can prepare as early as possible.
The Guardian advises that people “stress-test their finances”, even if they rent their property and don’t have a mortgage, or any debt that’s linked to the base rate.
For savers, a rate rise is positive news, as the interest on savings accounts and annuities has been considerably low for a number of years. Banks and Building Societies will be “forced…to increase what they pay on savings accounts”. Peer-to-Peer lenders are beating the base rate by offering savers higher interest returns. People that place their funds with Wellesley & Co. could earn up to 6% gross on their funds.