Cookies Policy: We use cookies on our website to make sure we can give you the best experience while browsing. If you are happy with this, please continue to use this site as normal or learn more. Discard this message

Who are we?

WE'RE ONE OF THE LEADING INDEPENDENT FINANCIAL PLANNING TEAMS IN THE NORTH.

Bank of England Base Rate is on the rise, so what’s the logic behind it?

Published On

andrew

With Chartered Financial Planner, Andrew Gilmore.

In March 2009, the Bank of England reduced the base interest rate to 0.5%, the lowest rate in nearly 300 years. We saw a further cut in August 2016 to 0.25% before seeing the first rise since 2007 in November 2017.

As a reminder, these early slashes to rates were emergency credit crunch measures to encourage borrowing and spending, although you could argue that is what caused the crashes in the first place.

Although this feels like a lifetime ago, the serious nature does mean we have a generation of borrowers who see the current rates as ‘the norm’.

Aside from a reversed cut due to Brexit concerns, last week seems to mark the beginning of the lifting of this emergency stimulus as rates rose to 0.75%. In theory this means higher interest rates: slightly positive for savers and slightly negative for borrowers, but in reality this is likely to have little effect on either, as it is so small and most saver and borrower rates are fixed for many years.

So why are we seeing rates rise now you may wonder? Here are our theories, taken from our knowledge of the industry;

Firstly, the consensus is that we are no longer in the grips of the credit crunch and this ‘needed to happen’ as other major economies are currently raising their cost of borrowing. America is raising rates and Europe and Japan are reducing their emergency money printing so we won’t stand out as breaking ranks if we do it now.

Secondly, we have near full employment, the economy is ticking along, albeit slowly, and wage pressures are expected to build due to Brexit affecting the labour supply. This could all lead to inflation and costs going up which the Bank is duty bound to limit to 2%. Higher rates send a message that high wage growth will not be tolerated and “nips it in the bud”.

The Bank of England is also convinced that Brexit (in just 7 months’ time) is going to be an economic disaster and therefore we will need room to cut rates next year. The higher they are, the sharper (and more powerful) the cut can be to support the economy when required.

Finally, the sceptic in me says that Mark Carney has been warning of interest rates rising “soon” for about 7 years, and its all getting a bit embarrassing that he’s never raised rates yet!

The market is definitely convinced this is a temporary rise – the pound has fallen to 1.29 against the American dollar and 1.12 to the Euro, ie the market thinks the base rate will be lower after Brexit – in 7 months. Ironically this means higher inflation, yet nobody believes the Bank of England is serious!

This is a financial promotion. The content of this blog is for information only and must not be considered as financial advice.  We always recommend that you seek independent financial advice before making any financial decisions.

Visit the website to find out more about Active Chartered Financial Planners

Connect with us on Twitter, Facebook & LinkedIn


< Back to Our Thoughts

CALL US TODAY

01642 765957

If you would like to find out more about how we can help you, please give us a call or drop us an email.

Get In Touch

Latest News

  • andrew

    With Chartered Financial Planner, Andrew Gilmore. In March 2009, the Bank of England reduced the base interest rate to 0.5%, the lowest rate in nearly 300 years. We saw a further cut in August 2016 to 0.25% before seeing the first rise since 2007 in November 2017. As a reminder, these early slashes to rates

Read More

Last Tweets

Testimonials

  • Having been a client of Active Finance for many many years and have always been given great advice and direction. I am now looked after by Andrew. He has given excellent advice and service, continuing on the great work this company has always offered me. Always cheerful and helpful; a great asset to Active. I

Read More

Active Financial Planners Ltd Registered in England & Wales No. 4039863 Registered Office: Active House, 1 Dukes Court, Thornaby, Stockton-On-Tees, TS17 9LR Active Chartered Financial Planners is a trading name of Active Financial Planners Ltd which is authorised and regulated by the Financial Conduct Authority