Today’s decision by the Bank of England (BoE) to increase the base rate to 0.5% shouldn’t have come as a surprise to anyone.
So, should we all be panicking?
No.
Ultimately, a base rate rise is actually not a bad thing as it shows that the country is doing well enough to warrant it. It has only risen by 0.25% and in truth, the BOE lowered it after the Brexit result, expecting things to be a lot worse than they were. So maybe they didn’t need to be lowered in the first place?
This rise simply puts us back to where we were before the referendum.
For us, the rate rise does not sway our long-term view at all. We still expect any further rises to occur over a long period of time. Each individual rate rise will be gradual, as and when warranted. If this decision gave us any insight, it’s that there will be plenty of speculation and warnings in the months prior to further increases.
When will we see the next rise?
There are two main reasons for our belief that further hikes are not imminent:
- The UK population is now spending as much on debt as they were at any point since the credit crunch, so any substantial increase in rates over too short a period would be bad for the economy
- Brexit negotiations are still up in the air and there is a lot of uncertainty remaining
Pre-credit-crunch, the normal base rate fluctuated between 4% – 6%. The Bank’s governor has said on numerous occasions that the “new norm” will be 2-3% – and it’s clear we will not reach those levels for some time yet.
Overall, we believe the rate hike to be a positive action for the economy and a sign of improvement and recovery. We know that it might not feel like a good thing to those clients facing higher interest rates, but we urge anybody facing decisions surrounding policies, lenders or switches to act quickly, as any current offers are likely to be replaced by rates which have risen to match to new BoE rate in due course.
If you would like to talk to us about how today’s rate rise will affect your own individual circumstances we’d be delighted to chat to you.
Please call us on 0800 612 8099.