The minutes from the Bank of England's (BOE) meeting regarding the current interest position is an interesting one.
As you would expect the BOE discussed many aspects of the UK economy and there was much to be up beat about. It felt that the contraction in job market had slowed. Consumer spending was up. House prices had risen by just over 1%, according to both the Halifax and Nationwide.
More interesting they felt "reasonably" confident that inflation would remain low, although there are many factors that could cause them to change their position on this.
The inflation figures we are seeing reflect a time when we had extremely high oil prices. Therefore it is no surprise that inflation is showing a big fall and of course we have seen huge discounting right the way through the high street. There are many different aspects that affect the price of oil, but very few feel there is scope for big falls in the cost of oil, or at least not ones that would effect consumer pricing, as for the high street, they will want their margins to return as soon as possible, so medium to longer term we are looking at price rises.
Parts of Asia that have seen strong growth in their economies and this may well put pressure on global commodity prices. This could assist reversing the current position, although this was considered low risk.
So far we have failed to mention QE. - Quantitative Easing. We are still seeing mega money being put into the UK economy. If the Governor of the BOE had his way then the amount of £50 billion would have been higher, by a whopping 25 billion. Justified by the argument that if this proved to be successful (and possibly too successful) then through other policies set by government and by Base Rate rises this could be controlled. With base rate at 0.5% there is certainly plenty of scope there.
Is was argued that it would be better to spend too much on QE the n too little.
This does tell us that despite there appearing to be improvements in the economy we have a long way to go. It also tells us that in the short term the BOE does not have any real fear of inflation and although there is the risk of inflation increasing all the current indicators are pointing to low inflation for the foreseeable future.
What is unknown and hard to predict is when inflation will be a "problem". By this I mean inflation increasing and needing to be controlled. When will that money start to re appear in the economy? When will lending return to a solid position? When will people feel secure in their jobs? When will the 4 days weeks and reduced hours be replaced with overtime and extra shifts?
There is no doubt that we are a little way off this, but the indications are that the process of the economy moving forward may well have begun, but we may well have engine trouble along the way, the experts will need to tinker with the economy to get us running smoothly, but no ne the less we are moving forward.
What does this mean for UK interest rates?
The BOE has indicated that it is not fully subscribed to the talk of a recovery. With further Quantitative Easing announced it clearly felt that further help was required and although the rate of unemployment appears to be slowing the increases we are seeing is still quite significant. This will mean base rate is likely to remain low in the short term, with rates rising in line with the pace of recovery, so slowly and gradually, picking up momentum as it goes along
People reviewing their current mortgage situation should consider where base rate might be in 2-3 years, this is much harder to predict then ever before, but what is clear they will be at a higher position then we are in now and any short term deal will result in renegotiating from a higher position. How high? That is the million dollar question. There are just to many unknowns to be complete ly sure at what point Base Rate will start to rise and at what p oint it will stop. All we do know is the only way is up!
To discuss the impact of interest rates may have on your home life and to discuss all the mortgage rate options available to you, then please email neil@house2housefinance.co.uk. All mortgage advice is given free and without obligation.
House 2 House Finance and Insurance is an Independent Mortgage and Insurance broker. All advice is given on a full advice basis and we have the ability to assist individuals with the most complicated of circumstances.
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