Bank of England warning: Markets prepare for interest rates to be raised this week

Martin Lewis talks about rising interest rates on mortgages

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Later this week (November 4), the bank’s Monetary Policy Committee is expected to make a final decision on interest rates, which remained at a record low during the pandemic. Looking at the market, city traders have already cancelled their bets against the pound, with bets having halved in the past three weeks. Currently, markets are placing a nearly 90 percent probability of rates being hiked by the Bank of England ahead of Thursday’s vote.

In March 2020, the Government cut interest rates to an all-time low of 0.1 percent in response to the Covid pandemic, with inflation currently standing at 3.1 percent.

However, market predictions suggest this is likely to change as the Government hopes to return the country’s economy to some semblance of normalcy prior to the crisis.

During a speech to the Society of Professional Economists last month, Andrew Bailey, Governor of the Bank of England, explained the state of the UK economy and why action may be necessary.

Mr Bailey said: “The rate of recovery has slowed over recent months, and that slowing is continuing.

“Relative to the fourth quarter of 2019, on the latest data to July, the level of GDP was 3.5 percent lower.

“That’s around one percentage point below the level consistent with the August Monetary Policy Report.

“There is a crucial distinction here between growth rates and levels of activity.

“It is inevitable in a bounce-back that the growth rate will slow as the recovery nears its end-point. It is not though inevitable – or desirable – that the previous level is not regained.”

A rise in interest rates would lead to mortgage repayments being increased also due to lenders needing to keep in line with the bank’s decision.

Addressing the potential impact on homeowners, Laura Sutter, Head of Personal Finance at AJ Bell, explained why this interest rate hike could not come at a worse time.

Ms Sutter said: “The Bank of England could raise rates this week and banks and mortgage companies have already been quick to pass on increases to customers, even before a rise has hit.

“As we face a cost of living squeeze, with inflation set to go higher and taxes increasing from next year, many households can ill afford any increase in their costs.

Sarah Coles, a Senior Personal Finance Analyst at Hargreaves Lansdown, outlined what is at stake for the economy if interest rates were to be raised.

Ms Coles said: “This week’s interest rate decision is on a knife edge, with the markets now almost entirely convinced of a rise, and economists divided.

“A rise could be a shot in the arm for savers, but so many of them have lost track of what they’re actually making on their savings that they risk missing out.

“Our lack of connection with savings means we’re less likely to have an eye on the market when the Bank of England makes a change.

“If we already think we’re making five percent, we might think there’s no need to get excited if the base rate rises to less than one percent.

“It means we may well miss out on a raft of competitive offers set to hit the market.”

The Bank of England’s Monetary Policy Committee is set to meet up and discuss the UK’s interest rate on November 4.

Source: Read Full Article