Interest rate rise: now it’s 2016
1st June 2015
The latest Quarterly Inflation Report from the Bank of England suggests there will no base rate rise this year
“Free beer tomorrow” is a sign that used to be spotted in some pubs before they were closed down or became eateries rather than drinking establishments. Of course, tomorrow was always one day away, so free beer was an illusion. It feels the same with increases to the Bank of England’s (BoE) base rate, which has been stuck at 0.5% since March 2009.
“Interest rate rises next year” has become a variant on “free beer tomorrow”, with learned predictions from pundits, experts and even the Bank of England’s Governor, Mark Carney, proving to be mere shibboleths. In presenting the Bank’s latest Quarterly Inflation Report, Mr Carney deliberately avoided making himself a hostage to fortune, saying that the Bank “… has long expected that these (economic) headwinds will likely merit not only a more gradual rate of increase in Bank Rate than in previous cycles, but also require levels of Bank Rate to remain below average historical levels for some time to come”.
Look inside the Report itself and there is a graph showing how the money market (not the Bank) expects official interest rates to move over the next three years. At the same time, the BoE avoids confirming that the market’s figures are built into the Bank’s economic forecasts. As of May 2015 the market reading was that “…Bank Rate is expected to rise from early 2016, but to only 1.4% in three years’ time”.
That is a much slower pace of increase than in previous interest rate raising cycles, but it ties in with the Governor’s remarks. It could also be wrong: as Mr Carney wryly remarked six days after the general election, “Last week, we were reminded of the difficulties in forecasting the outcomes of complex, interacting systems”.
Fortunately there are plenty of ways of generating income that do not rely on base rates and some which, in recent weeks, have seen an increase in yields. For more information on your options, please talk to us. And do it today, not tomorrow!
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