September 15th, 2017
While on the surface it may appear that the Bank of England has decided to continue holding interest rates at their all time low, many of those paying closer attention are convinced important changes to the Bank’s monetary policy are on the horizon.
In a 7-2 decision, in which new Monetary Policy Committee (MPC) member Sir David Ramsden cast his first vote, the Bank of England again refused to raise rates, despite inflation standing at 2.9%, a full percentage point above their stated target. However, many members were keen to communicate that, in order to prevent inflation becoming unsustainable, interest rates will need to be increased at some point in the near future.
Although this news resulted in a surge in the value of the pound, with it climbing more than 1% against the dollar in the hours after the vote, there is concern surrounding the UK’s long term economic future. Having voted yet again to maintain the rate at 0.25%, the Bank released a statement that suggested “monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations.” Other sources interpreted this as meaning a 0.25% rise in interest rates was imminent, possibly occurring as soon as November.
The City, and the finance industry as a whole, have been paying close attention to conditions in the UK and have been eager to hear what the Bank has to say about rising inflation and the future direction of the post-Brexit economy. With the Bank of England in a precarious position, having to juggle concerns over inflation, a stalling economy, a weakening pound, cautious consumers, and a lack of investment, this vote was watched particularly closely for any indication that a change in monetary policy was required to combat the fallout from the Brexit decision.
Any hike in interest rates would have an instant effect on the general public, making borrowing more expensive and increasing the cost of mortgages, though it would also lift returns on savings. This means those contractors, freelancers and the self-employed contemplating taking out a mortgage may need to consider acting quickly to ensure a lower rate of interest is attached to the borrowing. With no fixed timetable for the interest rate hike, it’s important they strike while the iron is hot to avoid paying more for their mortgage and to achieve the best deal possible.
Though the news of a possible rise in interest rates was buried deep in the Bank’s statement, it seems to demonstrate a marked shift in the central bank’s approach. While some experts view the suggested rate rise as nothing more than a bluff, with many citing the governor Mark Carney’s personal aversion to the idea as evidence it’s unlikely to take place, most seem to agree that the statement implies a hike is imminent. With only a month and a half until the Bank’s next Inflation Report, experts will be keeping a close eye on the central bank’s activity and listening out for anything that suggests that, for the first time in nearly a decade, the MPC will vote to raise interest rates.
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