It is the sixth year that interest rates remain at an all time low of 0.5 percent. The latest Bank of England (BoE) Inflation Report suggests though that rates will increase in the second quarter of 2016, depending on the evolution of the economy in the coming year. What does this mean for you?
Inflation to deflation
The Bank of England has forecast CPI inflation will move into deflation in the coming months, which subsequently could result in interest rates increasing sooner than forecast. Deflation is expected to be temporary though with a rise again before the end of the year.
Strong sterling
The strength of the UK pound is also hindering economic growth slightly, with the UK stronger than the dollar for six consecutive months.
Steady increases
Mark Carney from BoE suggests that rates are more likely to be increased than decreased by 2016 but that any rise would be limited and gradual to ensure borrowers can adjust their spending patterns accordingly.
It has been communicated that the government do not want to hike up interest rates too quickly or too soon and run the risk of slowing the economy again.
The good news – still plenty of good mortgage deals
Competition between lenders continues to produce competitive deals in the mortgage market. The implementation of the Mortgage Market Review (MMR) has ensured lenders remain competitive on their pricing to encourage borrowing.