So, the Bank of England rate stayed at 0.10% and it was all a storm in a teacup! Easy to say after the event, but I did predict this!
The last thing the Government want the Bank of England to do is raise interest rates. This has the effect of dampening the economy and the economy is already pretty damp! In addition, the Government have a gigantic debt and a rate rise would increase their interest payments on it.
The pressure to raise rates has purely been caused by a spike in inflation, which has been caused by the recovery from the Pandemic and Brexit. It remains to be seen how much of this inflation is temporary and how much of it is longer lasting. Therefore, why raise rates until you are more sure of whether it is going to drop back of whether it looks like it may last longer?
Ultimately, I think this is why rates have not increased now. It may be that the can has just been kicked down the road, but future inflation figures will dictate this.
Despite the Bank of England remaining the same, perhaps in expectation of a rise and perhaps because they just could not keep lending on such low rates, all lenders have increased their rates by about 0.25%. The best rates now start at 1.19% for a 5-year fixed and 1.09% for a 2 year. I don’t expect these to come back down as lenders will take the chance to make some small profit again and they have all hit their lending targets for the year.
Longer term, we may well see the Bank of England rate rise, but that’s because it was cut to 0.10% as an emergency measure due to the Pandemic. I would advise all clients not to panic on rate rises, because when they do go up, it will be a very slow gradual rise over time. The Bank of England base rate has not risen above 0.75% since the credit crunch, which was 13 years ago. At some point we need to get back to 0.75% but that is still ridiculously low, and just getting back to those levels will take some time. I have not read any prediction that that they will go beyond the 0.75% in anything like the short to medium term.
As I say, a storm in teacup. My message is that rates are very low, and they will stay very low, but maybe just not quite as low as they are now.