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Will interest rates rise as UK follows US?

Interest rates are always in speculation and are often the topic of controversy. Some experts are predicting a rise in the imminent future, off the back of the trend that the UK usually follows the US when it comes to rate rises. Other experts are sticking to the opinion that rates will only start to rise in 2018. What indicators should you be watching to catch a rate rise before it happens?

This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.

Split opinions at Bank of England

Mark Carney, governor of the Bank of England (BOE) remains of the opinion that interest rates should remain at the low rate of 0.25%, despite the fact that inflation has now reached 2.9 percent. This is because, inflation is largely linked to the fall in sterling.

Three members of the Monetary Policy Committee (MPC) have alternative views and believe that the UK should start to increase rates again, as the US has done.

The once unanimous team of decision makers is starting to crumble, which means anything could happen, at any time.

Indicators to watch

The BoE now claims that it won’t be just one economic variable that makes the decision to increase interest rates. However, if several start to shift then this could be the tipping point.

Key indicators:

  1. Official support from the MPC for a rate rise. Up until recently there has been little support from the committee responsible for rate changes. However, with 3 now voting for a rate increase, it only takes 1 more for the committee of 8 to be split. Here Mark Carney would get the deciding vote, but it shows it is close.
  2. Inflation has increased. Following Brexit, the slump in the pound has caused the cost of UK living to escalate. Forecasts suggested 2.7% but no higher and now it sits at 2.9%. New forecasts suggest inflation could rise to 4%, which could force rates to increase sooner than Mark Carney has planned.
  3. The UK economy is stuttering. At the end of 2016, the economy grew by 0.6%, however in Q1 of 2017 it only grew by 0.3% showing a definite slowdown. The risk of another rate rise lessens if the economy is strong.
  4. Unemployment and wage growth. Unemployment in the UK is the lowest in 42 years, at 4.6%. The growth in average earnings is 2.1%, which means that wage growth is no longer exceeding inflation, which is has done for some time. A lack of wage growth generally makes a rate rise less likely.
  5. Economic growth forecasts are mixed. The International Monetary Fund (IMF) increased their prediction for wage growth, whilst the BoE cut theirs. Now the BoE predict a 1.9% growth in 2017, down from 2%.

Should you fix your mortgage now?

When rates are on the cusp of change it’s the time when everyone starts wondering whether now is the time to fix the rate on their mortgage.

Certainly, now is a good time to speak to a mortgage adviser to assess your options.

A Mortgage Review will indicate potential savings and even without the talk of a rise in the base rate of interest, you may find you can save money anyway. There are many good deals available at the moment as mortgage lenders compete for business.

Get a mortgage review with Chris

If you would like us to undertake a review of your current mortgage or compare various mortgage deals across the market, please contact Chris:


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