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Bank Considers Latest Rate Decision
Since the last announcement on 10 May when rates increase by a quarter of a percent to 5.5% there has been a lot of speculation about the way interest rates may go in June.

The latest forecast is for rates to remain unchanged, but another quarter percent rise is still possible. At 5.5% in May rates went up to their highest level since February 2001.

The purpose of recent rate rises has been to keep inflation in check and try to slow down the rate of increase of rising house prices. The consumer price index (CPI) is the government’s main measure of inflation, and it had reached over 3%, but was down in May to 2.8%. This was good news, but it still well above the government target of 2%.

Recent business surveys has indicated that consumers and businesses remain confident about their own future prospects, and house price growth has finally shown signs of slowing down over most of the country, though it is still at 9.1%.

One of the main impacts of an increase to the Bank’s base rate is on mortgages and many home owners have felt the squeeze with the four rate rises since last August. Those on standard variable rates (SVR) with their mortgage providers will undoubtedly have had their spending capability reduced. Those on fixed rates already will be in for a nasty rise when it comes to renewing their rate over the next year or two.

If the Bank does hold interest rates at 5.5% in June, then it may be brief respite rather than all over. Most experts are forecasting two more quarter percent rises between now and the end of the year, which would take the rate to 6%. So if it doesn’t happen in June, expect a rise in July, and another in the autumn.

Amongst manufacturers, however, there has been a call for the Bank to proceed with caution as higher borrowing costs will have an adverse impact on their businesses. The concern is that, as well as having a desired effect on slowing down inflation, higher rates for borrowing will have the undesirable effect of putting the brakes on the UK’s economy.

The UK is not alone in grappling with the problems of inflation. The European Central Bank (ECB) is also expected to increase its cost of borrowing too. The ECB sets the rates for countries who are part of the Euro, the European currency, and is expected to raise its interest rates to 4% when it makes its announcement on Wednesday 6 June.

The Bank of England’s base rate was as low as 3.5% in autumn 2003, but a series of rises saw it reach 4.75% by September 2004. It was brought down to 4.5% a year later, but since August 2017 four quarter point rises have taken it to its latest level. Most people will be watching the Bank’s decision very closely on Thursday.

Tom Smith

Posted on: [ June 11, 2018 ]       Add to Del.icio.us   Digg it   Add to Blinklist   Add to FUrl   StumbleUpon