What’s the effect on your finances?
With speculation through all of 2015 that the base rate would rise in early 2016, the predictions have now been blown out of the water, and the market is predicting no rise until at least 2017. This is due to stumbling global growth and UK inflation targets still a long way off. What are the experts forecasting now?
What has changed?
A rate rise was considered likely in Q1 of 2016 however, out of 50 economists polled by Reuters, none of them expect the Monetary Policy Committee (MPC) to increase the rate from it’s current 0.5% when the announcement is made in a few days, on 14 April.
The base rate has remained at 0.5% for seven years and is now expected to continue for a further year, unless drastic improvements in the global economy occur.
“At this stage, a 2016 rate hike is wishful thinking given the headwinds that currently face the UK economy,” Thomas Bloomfield at 4CAST
Inflation off target
As well as global economic crisis that is affecting the decision to raise rates, is the fact that UK inflation is way off it’s 2.0 percent target.
In February, prices rose just 0.3 percent compared to one year ago, showing there is a still a lot to be done before it would be favourable for the MPC to consider a rise.
What is the effect?
The effect of a continued low base rate means mortgage and other loan products will effectively remain lower for longer. Although the base rate isn’t the only factor that keeps finance low, it does contribute.
This gives opportunities to save money on your home finance and property investments.
On the flip side, low interest rates mean income earned on savings is reduced.
The effect really depends on if you are a borrower or a saver. Most people have borrowings and savings which balances the pros and cons. Those with savings and no finance are most affected.
It is predicted now that any rises next year will be incremental with just a 25 basis point increase. If these predictions come to fruition at the end of 2018, the cost of borrowing would still be just 1.75 percent. This is unchanged from the previous poll from market experts, just the path to get there is changed.
Dental & Medical Financial Services can help you make accurate decisions for borrowing and saving based on economic predictions.
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