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To Rise or Not To Rise, That is the Question

16.10.17

It’s an interesting time to be the Governor of the Bank of England, especially as the pressure ramps up to make a decision as to whether to increase interest rates from their historical low of 0.25% or not.

On the one hand, many economists expect inflation to break the 3% barrier this month which triggers another letter to the Chancellor explaining the reasons why this has happened. This will undoubtedly bring a mention of the thorny subject of Brexit and probably more accusations that he is not being “independent” enough. Surely it is his job to talk about any issues that he sees as a result of Brexit?

Anyway, that aside, this inflationary pressure would normally see a nailed on response in terms of an interest rate rise. There are also some who believe Mr Carney has to increase rates soon, just in case he needs to cut them again if Brexit negotiations go south and no deal becomes a real option.

Interestingly however, a leading economic think tank today came out with a warning that the Governor should stay his hand for some time yet.

The EY Item Club warned that if he was to increase rates so soon this would be a risk given the “fragile economic outlook”. The British Chambers of Commerce and Standard & Poor’s have both said that the time is not right for a rise yet and want to see some real concrete improvement in economic data before such a rise is undertaken.

Once again Carney seems to be stuck in no man’s land and which way he ultimately swings remains to be seen, despite the fact that the odds of a rate rise in November are mooted to be at 80%.

Carney’s work may however, already be done, as Swap Rates have already priced in the 0.25% rise despite it not actually having happened and this has resulted in most of the main lenders increasing their rates accordingly.

In recent years it has become harder to harder to accurately predict whether we have seen the bottom of the interest rate cycle or not, especially with competition amongst lenders still blowing up a storm, but there is a sense that finally the ultra-low rates of a few months ago will not return quite yet.

Although everyone tires of the subject, the Brexit negotiations really are everything in this regard and whether this is the start of a period of rising rates or a false dawn depends on the deal that can be struck, or not as the case may be.

This fear of the unknown is finally prompting many borrowers to act and lock in to a low fixed rate now whilst affordability is known, with a growing interest in longer term fixes.

The good news is that despite some reports, there really is a great deal of choice and availability in the mortgage market and it seems a very sensible time to at least review your options now.