Borrowers warned of imminent rise in United Kingdom interest rates

Ivan Schwartz
February 10, 2018

The Pound jumped by over half a percent against both the US Dollar and the Euro following the Bank of England's "Super Thursday" announcement yesterday afternoon, in which the BoE ramped up expectations for a sooner-than-expected interest rate hike in the UK.

He stressed that the bank is not planning to go back to the 5%-plus levels seen before the financial crisis and not at the pace seen in previous interest rate cycles.

That will be excellent news for companies and, potentially, free up more capital to be invested in profitable activities rather than simply filling in pension deficits. Over the past year, stocks, particularly in the US, have seemingly been on a never-ending rise with little pullback. "Conversely, we are growing cautious on those companies which rely heavily on overseas earnings, as rising interest rates could cause the pound to strengthen further from here".

Although policymakers voted unanimously to keep interest rates frozen at 0.5%, the meeting minutes and Inflation Report stated that members of the MPC were no longer willing to tolerate inflation trending above the target level of 2% over the coming few years.

He said: "Assuming there is no major economic shock, the MPC has judged that monetary policy needs to be tightened somewhat earlier, and somewhat more, than anticipated in November".

The bank observed that wage growth appears to be picking up. Inflation could rise back above 3% in the short term, Carney said. If you haven't already, those with mortgages or planning to buy may want to consider fixing their repayments while rates are still low.

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Economists said the chances of a BoE rate hike in May now depended largely on whether pay growth picks up and whether Prime Minister Theresa May can soon secure a transition deal for the two years after Brexit.

Alex Hutton-Mills, Managing Director at Lincoln Pensions commented: "Today's decision by the MPC to hold interest rates is not surprising given recent events and statements by the Bank on their view of the macroeconomy including, inflation expectations".

"As well as this crucial fact, the rest of the world is also doing way better than many people would have thought a year ago, so it makes it easier for the United Kingdom".

"My guess is what's happening right now in the first quarter, I think (household real incomes) are starting to rise".

At the time it forecast two further increases over three years.

The bank commented that if the United Kingdom economy grows as expected, monetary policy will have to be tightened somewhat earlier and by somewhat more than it was expecting last November. If this is repeated for the February figures then the AUD could rise in value. "By allowing P2P lending platforms like FOLK2FOLK to be part of the ISA wrapper, investors are now benefiting from inflation beating returns without the volatility of the stock market". "These figures were relatively high compared to the Index at the end of 2015, which was £203,000".

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