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Are Interest Rates Set to Rise?

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Are Interest Rates Set to Rise?

All members of the Monetary Policy Committee voted to hold Bank Rate at 0.5% at the most recent meeting.

However the MPC revealed that for a number of members, the balance of risks to medium-term inflation relative to the 2% target was becoming more skewed to the upside at the current level of Bank Rate. For these members, the uncertainty caused by recent developments in Greece was a very material factor in their decisions: absent that uncertainty, the decision between holding Bank Rate at its current level versus a small increase was becoming more finely balanced.

There was a range of views among Committee members on the significance and scale of the news regarding domestic costs, external price pressures and the balance between them. It was evident that domestic cost growth was recovering. But there were questions regarding: whether the increase in wages relative to productivity would be sustained in light of the risks to global and UK activity emanating from developments overseas; and whether or not increases in domestic costs were occurring sufficiently rapidly to offset the probable drag on CPI from the appreciation of sterling and so return inflation to the target within two years.

For most members, even before accounting for the recent increase in uncertainty in the external environment, the current stance of monetary policy remained appropriate to balance the risks of inflation around the target in the medium term.

Chris Whittaker, Director of our sister company Oaktree Mortgages Ltd commented:

"Although the committee voted unanimously against a rise, it is inevitable that interest rates will rise- it is just a question of when. MPC Members have hinted that they are likely to ramp up the pressure to change the base rate in the remainder of the year, as inflation and the wider economy are projected to gain momentum in the coming months."

"The fact that rates have stayed the same for six years may have driven many borrowers into complacency when it comes to seeking the best deal for them. Someone on their lenders SVR with a £150,000 loan and a 40% deposit, for example, could save over £4,000 per year. The savings are even greater the bigger the loan, so savings are there to be had across the whole market. It’s crucial that people with mortgages discuss the options with their mortgage broker so that they can make the most of record low rates and effectively give themselves a pay rise."