Opinion: Interest rates – when will they increase?
Kathryn Bamber of Astute Wealth Management looks ahead to next week's inflation report.Since base rate was slashed to 0.5% in March 2009, many borrowers have started to get used to these low interest rates and maybe even started to think that it will continue ad infinitum.
Yet just six months before rates were cut to their historic low, base rate was 5%, and as rates had been hovering around that level or slightly higher for around 15 years, 5-6% was considered normal.Since he took office, Bank of England governor Mark Carney has started to intimate that these days are numbered so each new report or announcement is carefully picked over for signs of whether rates are likely to move imminently.
On Wednesday 13th November, the Bank of England will produce their quarterly Inflation Report which will include the latest forecasts on future unemployment rates. This is critical data as Mark Carney has indicated that one of the key triggers for an increase in base rate could be a fall in the jobless figures below 7% (currently standing at around 7.7%).Another key figure is the rate of inflation, as one of the Bank of England’s main roles is to keep inflation in check. It is currently sitting at around a 2.7% but this is before the recent announcements of hikes in energy prices have fed in so it is likely that this figure will increase going forward. Any significant increase in inflation is likely to fuel pressure on interest rates.
Currently, most economists are still of the thinking that base rate will increase some time in 2015-2016 and pricing for fixed rates on borrowing takes this view into consideration - 12 months ago, the 5 year swap rate was 1%, but today it is 1.755% which gives a good indication if you were looking for one that the market is expecting rates to rise.So is this a good time to fix interest rates?
It depends on your long term plans. It is important to realise that if you lock into a fixed interest rate, you will have to pay fees to exit the agreement early so make sure before you sign up to a fixed rate that you won’t want to repay the borrowing before the fixed rate expires.However, if need to know that your repayments won’t increase, it is definitely worth looking at. Kathryn Bamber Astute Wealth Management