Posts with tag: Bank of England interest rate

Interest Rates Likely to Rise, Says George Osborne

Published On: September 22, 2015 at 12:17 pm


Categories: Finance News

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Interest Rates Likely to Rise, Says George Osborne

Interest Rates Likely to Rise, Says George Osborne

Chancellor George Osborne has revealed that interest rates are more likely to rise than fall, due to the success of the UK and US economies.

Osborne has been touring China to establish closer political and business ties.

On Tuesday, he told BBC Radio 4’s Today show that an increase in interest rates, suggested by the Bank of England (BoE) governor, Mark Carney, reflects the “robust growth” of Britain’s economy.

The BoE’s chief economist, Andy Haldane, recently indicated that interest rates might remain low, partly due to the slowdown in the Chinese economy.

Osborne said Britain has “the right people to make the call”, adding, “the governor has signalled, I think pretty clearly, the direction interest rates are heading”.

He also mentioned that the Federal Reserve has defied expectations by keeping interest rates down due to the decline in Chinese stocks.

He said that interest rate setters “are always going to be sensitive to what is going on at that moment, but the general signal coming from the Bank and Federal Reserve is, because the economies have been growing robustly in the last couple of years, the exit from very loose monetary policy is going to come”1.



















Interest Rate Rise in Autumn 2016, City Predicts

Published On: August 28, 2015 at 3:42 pm


Categories: Finance News

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The first rise in UK interest rates will be put on hold until autumn 2016, predict City experts.

The financial chaos in China is making it seem more likely that rates will stay at their record lows for longer than previously expected.

These predictions arrive as homeowners rush to remortgage in anticipation of a rate increase.

This week, the British Bankers’ Association (BBA) claimed that the number of people fixing their loans at low rates is at the highest level for four years.

Interest Rate Rise in Autumn 2016, City Predicts

Interest Rate Rise in Autumn 2016, City Predicts

This follows the Bank of England (BoE) boss, Mark Carney’s indication that the Bank could raise interest rates early next year.

As the FTSE-100 is down 15% from its April high and China is cutting interest rates to support its slowing economy, City traders have lost confidence regarding rate growth in Britain.

Market traders were prepared for a rise from the current rate of 0.5% next May, but in the last few days, this has been set back to late September or even early October 2016.

Chief UK Economist at investment bank Citi, Michael Saunders, says his main prediction is that the Bank will increase rates early next year, but adds: “It would not be a big step to expect that bank rate at end-2016 will still be 0.5%.”1

UK Economist at Capital Economics, Paul Hollingsworth, also says: “Recent equity market volatility and the further fall in commodity prices is probably the final nail in the coffin for those entertaining the possibility of a rise in bank rate this year.

“But we think markets have gone too far in expecting the MPC to hold off until October next year.

“China’s recent economic data suggest that growth remains sluggish, but not weak enough to justify feats of a hard landing. In addition, the UK’s trade links are still fairly small, with only around 5% of goods exports going to China.”1

The BBA’s data reveals that mortgage approvals in July were 15% higher than last year and house purchases increased by 11%.

Chief Economist at the BBA, Richard Woolhouse, explains the situation: “Everything that has happened in China this week puts the likelihood of that rise back two to three months. But even if rates do go up in the near future, I don’t think mortgage rates will go up as much and, in any case, this won’t impact much on people’s decision to buy a house.”

He believes that people would still do “whatever they can” to get onto the property ladder.

He expects rates to rise slowly and gradually over the next five years, when he says they could reach 3%.

Woolhouse adds: “Even if rates go up faster than expected, I don’t think that would affect the housing market. The fact is that price rises are being driven by a shortage of housing and demand outstripping supply.”1


BoE Governor Says Interest Rates Could Rise at New Year

Published On: July 17, 2015 at 1:45 pm


Categories: Finance News

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The Governor of the Bank of England (BoE) has said that interest rates could start to rise around New Year.

This has been the strongest confirmation that policymakers at the Bank are preparing to act, as Mark Carney claimed that the decision to raise interest rates was likely to arrive at the end of this year.

For savers, this will provide long-awaited relief, as their returns have plummeted due to the financial crisis.

However, borrowers will have to pay more on their mortgage and credit card bills. The increase could also affect the housing market.

The BoE base rate is the rate that the Bank charges to banks and building societies. Carney expects this to increase slowly over the next few years.

At the present 0.5% – a record low for the past six years – it will rise gradually in the next three years and peak at around 2.5%, around half the historical average.

In a speech in Lincoln, Carney said: “The need for the base rate rise reflects the momentum in the economy and a gradual firming of underlying inflationary pressures.

“In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”

He stressed that it is almost time to act, as he said that any action taken by the BoE to steady the economy by increasing interest rates would take around 18 months to take effect.

BoE Governor Says Interest Rates Could Rise at New Year

BoE Governor Says Interest Rates Could Rise at New Year

Carney assured borrowers that any increases “would proceed slowly” and that the nine policymakers at the BoE who set interest rates would take a “feel its way as it goes” attitude to tightening policy, which will depend entirely on data.

Rates are expected to “rise to a level in the medium term that is perhaps about half as high” as the historical average of 4.5%, he said, but it will not be “mechanical”, “linear” or “predetermined.”

“Shocks to the economy and shifts in the exchange rate, for example, could easily adjust the timing and magnitude of interest rate increases,” said Carney. “Growth in the parts of the global economy that matter most to the UK is running 0.75 percentage points below its historic average.”

BoE policymaker, David Miles, said recently that it would be a “bad mistake” if policymakers wait too long to increase interest rates.1

Carney has informed MPs that UK interest rates were forecast to rise around half the pace of the US, in part due to British households being more vulnerable to the impact of higher rates.

Bank data reveals the proportion of people taking out fixed rate mortgages when purchasing a property has grown to 77% of all new UK lending, compared to 45.9% at the start of 2008.

However, the majority of homeowners with existing mortgages remain on a variable rate deal, with 57% of outstanding loans on a changeable rate.

Carney said on Tuesday that the BoE would observe developments “very closely.”

He told the Treasury Select Committee: “We will learn about sensitivity as rates begin to adjust.”

Inflation, measured by the consumer price index (CPI), dropped to 0% in June, below the BoE’s 2% target.

However, this does match the Bank’s expectations and policymakers predict that inflation will grow to over 1% by the end of 2015.

Carney told UK households to enjoy low prices “while it lasts.”1

This news arrives as house prices have reached a record high. In June, property owners and buyers reacted to the Conservative general election win by borrowing at the fastest rate for seven years.

Economists believe there was a surge in optimism as people realised their plans that were delayed due to election uncertainty.

According to official figures, the average property price in England and Wales increased by 1.1% between May and June to £181,619.

The previous high recorded by the Land Registry was £180,983 in 2007.

Separate data reveals that this growth coincides with a substantial rise in the amount of money borrowed as mortgage debt.

Borrowing increased to £20.5 billion in June, a 29% monthly rise and the highest level for that month since 2008.

Economist for the Council of Mortgage Lenders (CML) – that compiled the data – Mohammed Jamei, says the June figures were “flattered” by the end of election doubt.1

Housing Economist at Halifax, Martin Ellis, adds that there was a “noticeable spike in optimism” after the result.

He continues: “A key factor in maintaining optimism over house price growth has been the fact that the stock of homes available for sale is currently at record low levels.

“If this growth is to be sustainable then we need to see a comprehensive house building plan rolled out across the UK.”1 

However, experts warn that once this election bounce is out of the way, the pace of growth will calm down.

Head of Lending at the Mortgage Advice Bureau (MAB), Brian Murphy, concludes: “Homeowners are still benefitting from a significant uplift in the value of their properties, but there are encouraging signs that the market is returning to a more stable footing.”1






Bank of England Governor Says Rate Rise is Drawing Closer

Published On: July 15, 2015 at 11:42 am


Categories: Landlord News

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The Governor of the Bank of England (BoE), Mark Carney, said yesterday that an interest rate increase is drawing closer due to the UK’s economic performance.

Bank of England Governor Says Rate Rise is Drawing Closer

Bank of England Governor Says Rate Rise is Drawing Closer

However, Carney also said that UK households are more wary of interest rate rises than in the United States, as many mortgage borrowers here are on standard variable rate (SVR) deals.

Despite inflation reported at 0% in the year to June, as claimed by the Office for National Statistics (ONS) yesterday, Carney believes that the UK is almost ready for the first rate increase since the financial crisis.

He explains: “The point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent growth above trend, a firming in domestic costs, counter-balanced somewhat by disinflation imported from abroad.

“One of the reasons for that is the greater sensitivity of the average UK household to interest rates because mortgages are principally floating rate in the UK and principally fixed in the US.

“Once rates begin to adjust, we expect for those adjustments to be at a gradual pace and to a limited extent. We will learn about the sensitivity as rates begin to adjust, we will watch it very closely.”

Carney also detailed the “new normal” interest rate, which he suggests could be lower than the ordinary 5% seen in the decade before the financial crisis and definitely lower than the peak of around 15% in 1989.

He continues: “I do think there are a variety of factors that mean that the new normal, certainly over the policy horizon over the next three years, is substantially lower than it was previously.

“I see no scenario in which they would move towards historic levels.”1