The market still can't seem to make its mind up. While it no longer thinks a rate cut is likely one thing it seems certain on is that rates will stay low for years to come. Currently the market is not pricing in a interest rate rise until 2017 and then rates will not rise above 1.25% (the base rate is currently 0.5%) until 2020!
But why is a rate rise looking unlikely?
- 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%.
- Inflation still proving sticky – the official measure of UK inflation remained at 2.7% in December (for the 3rd month in a row). To combat inflation interest rates are usually increased. Although inflation remains stubbornly high it is expected to fall back under the Bank of England's 2% target in the next year.
- Is the UK economy heading for a triple dip recession? – The UK economy contracted by 0.3% in the final 3 months of 2012, despite strong growth in the previous quarter. If the economy doesn't grow during the first 3 months of this year then the UK will enter its first ever triple dip recession. In theory a growing economy increases the prospect of a rate rise but the recent fragility of the UK economic recovery will remain a major deterrent.
- Unemployment seems to be falling – The number of people out of work fell by 37,000 to 2.49 million in the three months to November, with the number of people in work reaching a record high. The UK unemployment rate now sits at 7.7%. In theory a stable growing economy, will keep a lid on unemployment, and be more conducive to a rise in interest rates.
- UK economic growth forecasts continue to be cut – be it the Independent Office for Budget Responsibility , the Bank of England themselves or the National Institute of Economic and Social research, which now predicts that the economy will grow by just 0.7% in 2013. Raising rates would hammer consumers further and could derail any sniff of an economic recovery which would be bad news.
- 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 not going to be in the job much longer as he will be stepping down in 5 months time.
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.