Saturday, 18 November, 2017

Bank of England hikes interest rates by 0.25 pct

Millions face mortgage payment hike with first interest rate rise in a decade expected TODAY Pound to euro exchange rate UPDATE: Sterling FALLS ahead of BOE interest rate meeting
Juana Turner | 05 November, 2017, 01:48

The UK central bank, battling Brexit-fuelled inflation, lifted its key interest rate to 0.50 per cent on Thursday in the first increase since 2007.

The truth is that the recent warnings from Bank of England governor Mark Carney and other members of the bank's rate-setting committee of an early increase in rates became self-fulfilling.

It is likely to be the first of a number of rises over the next five years with forecasts indicating it could reach 2.25% by 2022. That's more than markets are now expecting and more than the institute forecast in August.

Sterling has been on the up this week, as markets prepare for a potential interest rate hike.

Ian Kernohan, economist at Royal London Asset Management, believes that further hikes will depend on Brexit.

"With inflation set to fall next year as the impact of sterling devaluation wanes, the MPC will stop hiking if there are clear signs that the economy is slowing".

The immediate effect of a rates increase is on the disposable income of households.

"The reason why we've got additional rate increases in our forecast this time is because of the lower productivity profile", Amit Kara, head of United Kingdom macroeconomic forecasting at Niesr, told reporters.

However, it should boost savers via higher rates of return.

Chris Urwin, head of global research, real estate at Aviva Investors, said: "Extremely expansive monetary policies across the world has been a major tailwind for real estate, including the United Kingdom market ..." Anyone with concerns about managing their mortgage should contact their lender as soon as possible to discuss the advice and support available, ' she added.

'Those on fixed rate deals are safe for the time being but when the term comes to an end new fixed deals could be more expensive.

Howard Archer, chief economic adviser to the EY Item Club consultancy said: "The Bank of England seemingly sees the hike to 0.50% as more likely to be a case of "one and a little more to come" rather than "one and done".

'What it does is reverse the post-referendum cut from 15 months ago, which, with activity broadly holding up, may have been an unnecessary safety net, ' he added. "So investors will need to be increasingly selective against a more challenging backdrop".

He says the share of outstanding mortgages on variable rates - and which are therefore likely to see an increase in payments if the base rate is increased - has fallen to a record low of about 40 per cent, well down from a peak of about 70 per cent in 2001.

A reduction in interest rates makes saving less attractive and borrowing more attractive, which stimulates spending.

"In addition, the MPC faces a long-term challenge of raising interest rates back to some sort of normal level after an exceptional and unprecedented decade of low rates since the financial crisis".

Today the Bank of England has risen the rate by 0.25% to 0.5%.

'There is without doubt some symbolism around this first increase for 10 years but it is highly unlikely to cause the property market to implode.

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