Latest interest rate predictions – June 2013
UPDATE: This post relates to June 2013. For the latest interest rate prediction click here.
So when will interest rates go up?
Markets still think a rate rise is a way off yet but interestingly they think it will happen around 18 months sooner than they did this time last month. The markets now believe the Bank of England Base Rate will rise to 0.75% in mid 2016.
But why is a rate rise looking increasingly more likely?
- NO official support for a rate rise – last month the Bank of England’s Monetary Policy Committee (MPC), who are the guys who decide the UK base rate, once again voted to keep the base rate at 0.5%. But despite the MPC debating the possibility of a negative base rate this eventuality is increasingly unlikely. This extraordinary measure would mean that some financial institutions would actually have to pay to deposit money with the Bank of England, which would hopefully encourage more lending to businesses and households instead.
- Inflation has fallen – unexpectedly the official measure of UK inflation has fallen to 2.4%, down from 2.8% in April. But it is expected to rise again this summer. To combat inflation interest rates are usually increased. Despite the recent respite from inflation the Bank of England still thinks that inflation will remain above its 2% target until 2016.
- The UK economy avoided a triple dip recession! – Despite the excuses that were already being lined up (the snow etc), the UK economy actually grew by 0.3% in the first quarter of 2013. It might not be much but it's start and helped avoid an unprecedented triple dip recession. In theory a growing economy increases the prospect of a rate rise
- There's optimism about future economic growth - be it the UK services, manufacturing or construction sectors recent data has pointed to improved signs of economic recovery. It may be too early to call them 'green shoots' but the markets certainly think that a normalisation of interest rates will now occur sooner than previously thought.
- Unemployment has stopped falling – The number of people out of work rose by 15,000 to 2.52 million in the three months to the end of March, escalating the recent trend of rising unemployment. The UK unemployment rate now sits at 7.8%. In theory a stable growing economy, will keep a lid on unemployment, and be more conducive to a rise in interest rates. But the latest unemployment figures are a blow, in theory making a rate rise less likely.
- UK economic growth forecasts still disappoint but are less pessimistic – for example the British Chamber of Commerce has just upgraded its UK GDP forecast for 2013 from 0.6% to 0.9%.
- Mervyn King doesn't want to raise rates – Mervyn King is the guy who heads up the group of people who set the bank base rate. Mervyn has previously said that there would be no rise in interest rates until there was clearer evidence that the economy was growing and that unemployment and the interest rates actually paid by consumers were falling. All three of these boxes have yet to be ticked and are unlikely to be any time soon. But then again Mervyn is leaving the job this month so the markets will be waiting to see what happens when Mark Carney takes up the position next month.
So should you rush to fix your mortgage now while rates are low?
Luckily Dean, a mortgage specialist, recently answered this question in his article "Is now the best time to remortgage?" But if you want more help or advice then you can contact Dean by clicking on the 'contact an adviser' button below.
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