Interest Rates up to 2%

by Mark Johnston

The Bank of England’s Andrew Sentence has warned that interest rates could “quadruple in a year” hugely impacting average households.  In a recent statement, Andrew has predicted that the base rate will be as high as 2 per cent by next year, suggesting that if interest rates don’t go up, it would put Brittan in a more difficult economic situation. 

With the gradual rise in inflation and the cost of living is increasing too, Mr. Sentence failed to argue his case successfully for a doubling of the interest rate this month.  He claims that due to the sharp rise in cost of living, the base rate will need to increase to ensure a control over inflation.  A warning to families is that interest rates are likely to go up to 2 per cent by this time next year.  

Recently the Bank of England maintained the startling base rate of 0.5 per cent.  This should come as no surprise to the readers of  With the struggling pound and the weak progress of the pound against other currencies, the Monetary Policy Committee has decreed that the base rate should not change.  This marks the 25th month running that the committee has decided against a change. 

What is a surprise is that the bank decided against increased quantitive easing.  There is some disagreement in the committee, with a small division requesting an increase to the base rate, citing continued impacts on inflation and pressures within this market.  Members of the monetary committee seem quite happy to wait and see what figures say regarding growth on Gross Domestic Produce (GDP).  Investors are betting the Bank will hold out on action until May or June but this is where the economic picture becomes a little clearer and where decisions need to be made and risks need to be taken. 

Inflation rose in February to 4.4 per cent and continues to rise, boosted by rising commodities prices.  Oil is also a contributing factor; the price is rising steadily driven by a higher demand within Asia and by supply concerns from the recent conflicts in the Middle East.  To keep inflation in check the Bank of England has the job of raising or lowering rates.

With current interest rates at 0.5 per cent, an average mortgage of £160,000 at a variable rate over 25 years, you would pay £568 per month.  If interest rates were raised to 2 per cent, then the same mortgage over the same period would cost £682 per month, over £100 more per month.

Mr. Sentence said “I have argued in public that half a per cent interest rate rise is justified and I still think that that’s the case.  I’m not sure I am swimming against the tide because I think the balance of opinion has been shifting in that direction. We are meant to control inflation and we put in place some very low interest rates to deal with the deepening recession in 2009.”

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