Interest rate rise speculation

1st July 2014

Interest rate rise speculation

Short-term interest rates may start rising this year.

The Lord Mayor’s Banquet for Bankers and Merchants of the City of London at the Mansion House is one of the City events of the year, with speeches by both the Chancellor of the Exchequer and the Governor of the Bank of England The speeches are often used to reveal new policy initiatives. This time around George Osborne announced that he was giving greater power to the Bank of England to curb mortgage lending to prevent a housing bubble. However, his speech was overshadowed by one short sentence from the Bank’s chief, Mark Carney, on the subject of raising interest rates: “It could happen sooner than markets currently expect.”

Until Mr Carney’s remark, the markets had generally earmarked the first half of 2015 for a move away from 0.5%, with speculation focusing on February or May, when the Bank issues its Quarterly Inflation Report (QIR). Mr Carney’s words have now made November 2014 the favoured month, again coinciding with a QIR.

The markets reacted the following day to the Governor’s words, with yields increasing on two-year government bonds, shares in house builders falling and the pound rising to €1.25 and nearly $1.70. Even so, there is no expectation of a sharp rise in rates – at least not yet. Later in his speech Mr Carney said, “… we expect that eventual increases in bank rate will be gradual and limited.”

Strangely, less than two weeks later Mr Carney hinted to the Treasury Select Committee that a rate rise was not imminent. His comments prompted the Committee’s chairman to remark that the Governor had provided “quite a lot of guidance, not all of it seeming to point in the same direction.”

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Related Articles

Making a Will during COVID-19

Thinking about how well we are prepared for our futures As coronavirus (COVID-19) leaves many of us working from home surrounded by our families and loved ones, it is inevitable that we start to think about how well we are prepared for our futures.

Read more

Bank of Mum and Dad

Make sure you can afford it and understand any tax implications Parents have always supported their children in lots of different ways. These days, growing numbers of parents see their adult children struggling to build up enough in savings to put down the deposit on a house or to afford to move up from a first home to something larger – but does this mean parents should help financially?

Read more

Festive Financial Gifts

Deciding on the right investments for the children in your life As the festive season approaches, have you thought about gifting your children or grandchildren something different this Christmas? Giving them a good start in life by making investments into their future can make all the difference in today’s more complex world.

Read more