Bank of England: “Interest Rates Will Increase”

It has been a while since we last spoke about this, but Interest Rates are firmly back on the radar. Hurrah, I hear some of you cry, whilst others ponder about what that means for their mortgage. Well like it or not, it is inevitable at some point.

Interest Rates At Present

So whilst the Federal Bank in the US have had four rates rises: the first in Dec 2015 (0.25% – 0.50%), the second in Dec 2016 (0.50% – 0.75%), the third in March 2017 (0.75% – 1.00%) and finally the fourth occurring in June 2017 (1.00% – 1.25%). Here in the UK we are yet to have an interest rates rise and so far have only had an interest rate decrease from 0.50% to 0.25% in August Last year.

Where are Interest Rates Heading?

The US

The likelihood for an interest rates rise is dependent on a couple of factors, mainly on Inflation and the US Labor market.

The Federal Bank Reserve have expressed a desire to raise interest rates in the short to medium term. Whilst the FED’s James Bullard, a non-voting member of the FED, said in his address on Wednesday that there was no need to raise interest rates anytime soon; Chairwoman Janet Yellen warned in a speech to the National Association for Business Economics “We should also be wary of moving too gradually”.

With now just four of the twenty FOMC members voting to hold on interest rates, the markets have begun to price in a rates rise for December with a predicted 70% chance of that happening.

Interest rates rise to help the £

Interest Rates Rise to Support the Pound

The UK

This week as the Bank of England celebrated its 20th year anniversary of independence, Mark Carney, the Governor of the Bank of England (BOE), has said in an interview that “in the relatively near term we can expect that interest rates will increase”. The next available date for an interest rates rise would be when the MPC meets on the 2nd November.

The reasoning behind a Bank of England rates rise are down to two factors. As Anthony Haldane, Chief Economist for the BOE pointed out this week, the UK economy is showing signs of healing. The UK’s current CPI (Consumer Price Index) is now sitting at 2.9%, as this has seen a steady increase, the Bank have intimated that an increase in the interest rate, will give a boost to the pound. For the BOE it is a fine balancing act but with an economy showing signs of inflation and with wages showing a more positive outlook, it is in a stronger position to return to normalcy.