by Mark Johnston
The Bank of England (BoE) has warned the UK that there is a distinct likelihood that inflation may soon be above 5 per cent. This may even happen within the next few months and adds more emphasis behind the push to raise interest rates.
Member employed by the BoE are divided as to when and how high rates should rise but they are all fairly certain that the Base Rate will need to rise to counteract potential soaring inflation figures.
The Inflation Report, delivered in February, noted that the inflation forecast peaked at 4.5 per cent in the three months leading up to September. However, in the minutes taken during the recent Monetary Policy Committee, it became clear that they were issuing caution and warned that “a significant risk that inflation would exceed 5 per cent in the near term”.
This warning tends to convince more of the 9 member strong Monetary Policy Committee that the time to raise rates is coming soon. Furthermore, minutes from the meeting indicated that there were three members who wanted to raise the base rate in February and the meeting notes suggest that further members are ready to join this way of thinking. “Others thought that, given further upwards revisions to the near-term outlook for inflation, the case for an increase in Bank Rate had strengthened in recent months.”
Banks, lenders, mortgage providers and industry experts are all fairly well convinced that the BoE base rate will rise before the year is out. Banks are betting on a June rise.
The BoE Monetary Policy Committee decided, when they can come to a general agreement, to keep the 0.5 percent base interest rate is needed and is prudent.
UK householders are advised to buckle up for a rate rise in the coming months and urged to review their individual situations to ensure their sustainability. For the moment the BoE has left the base rate unchanged, in anticipation of an inflation rise.
When the base rate does rise, it will, some experts say, will rise faster than savings interest rates and may catch some households unaware.
Ray Boulger from John Charcol says that “If you fix now for two years, you will need to fix again at a time when rates will almost certainly be higher,” he explained. “On the other hand, only two banks are offering 10-year mortgages and the price you pay won’t make it worthwhile.”
Industry insiders have urged homeowners to pay out their expensive costs now while the rates are still low.
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