Which way are interest rates headed?

We all tend to be divided about interest rates. If we have a home to pay for, we hope they stay low. The current Bank of England Base Rate of 0.75% supports historically low mortgage deals.

On the other hand, if we depend on income from savings, we might pine for the rates closer to 10% prevalent back in the 1980s.

At Continuum, we can help you deal with the impact of rates on your financial plans, whatever they are.

Why are rates so low?

We have grown used to low interest rates. The emergency level of 0.5% reached during the financial crisis was with us for almost 10 years. It helped the UK recover and build an economy which is thriving, despite the Brexit uncertainties.

Retail sales have surged, along with employment. Inflation is – at last – below the target of 2%. This is very different to what is happening in the Eurozone, with France stagnating, Italy in recession and German manufacturing output shrinking.

Why might they go up?

However, UK interest rates could be due to rise. Base Rate is the main tool that the Bank of England has to counter inflation. Governor Mark Carney has wielded it just once, when inflation seemed to be running away at 3% and more.

He may be wary of using it again too soon and pinching off current growth. However, he has warned that continuing recovery – basically, good news – will have a downside, with inflationary pressures making an interest rate inevitable.

He was quite specific about the figures involved. A rise in economic growth faster than 1.5% in 2020 and 2021 might be enough for the bank’s Monetary Policy Committee to consider that the economy was overheating, and to raise rates to counter it. Markets seem to be rejecting the idea that this will happen – although Mr. Carney has warned that investors were underestimating the likelihood of higher interest rates.

However, he may be changing his view. Giving evidence to MPs on the Treasury select committee, he has since said there were “no guarantees” on how the bank’s Monetary Policy Committee would act. He went as far as to suggest that the bank would provide stimulus in the event of a no-deal Brexit – in other words, cut, rather than raise rates.

What will happen?

The latest assessment of the UK’s prospects saw the bank’s Monetary Policy Committee keep interest rates on hold at 0.75%.

It has confirmed that it would restrict interest rate rises over the next two years to no more than a quarter point as Brexit uncertainty and the resulting drop in business investment reduced growth.

It looks as though if there is a smooth Brexit interest rates may still go up, but perhaps now not as quickly as the Governor has suggested in the past. If things don’t go so smoothly, the next rate move could be downwards.

What should you do?

The latest announcements from the Bank still suggest that interest rate rises could be on the horizon – although they will be more moderate, and slower in arriving than previously suggested.

Expert help could ensure the effect on your finances can be positive – and at Continuum we aim to do just that.

So, if you are living on interest from cash savings, for example, we can help you find better ways to profit from your cash. Alternatively, we could help you invest, to unlock its real potential.

If you are buying your home, you may want to look at ways to tie your mortgage rate into a low rate for the longest possible time and we have mortgage experts who can help you fix your mortgage rate.

Whatever direction interest rates take, you need to act now to ensure it is the right direction for you. Call us at Continuum today.


The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The value of investments can fall as well as rise and you may get back less than you invested.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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Book an initial consultation with one of our independent financial advisers or call us on 0345 643 0770 if you would like to discuss further.





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