In November 2017, the Bank of England raised interest rates to 0.50 per cent.
November 2018 has been touted by some commentators for the next increase.
Before the November 2017 increase, the Monetary Policy Committee (MPC) held interest rates at 0.25 per cent for a year, and rumours began to circulate in the financial industry on when the MPC would vote to increase the rates.
In August 2017, as part of the so-called Super Thursday, the Bank of England released their report on the current state of inflation in the U.K. economy.
Inflation reduced slightly in the month of June 2017, falling from 2.9 per cent to 2.6 per cent, and this led many experts to predict that the MPC would vote to maintain the status quo in regards to interest rates during this period.
Economic growth is forecast to be sluggish as the rate of inflation continues to eat into disposable income and spending power. The relatively high rate of inflation, combined with the uncertainty over Brexit negotiations and slow wage growth has put the reins on economic prosperity in the U.K.
High inflation has led the Bank of England to predict that interest rates may need to increase, but at very small increments.
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Increasing Calls to Rise Interest Rates
Before the the small November increase at the end of last year, it had been 10 years since the UK last had an interest rate rise, which saddled cash savers with low rates.
Some within the financial world believe there is a case to increase interest rate levels again earlier than the middle of 2018.
With the falling value of sterling after the E.U. referendum, the relative price of imports created inflationary pressure that is remaining high.
This phenomenon, combined with wage growth stagnation, has led the Bank of England to surmise that the economy is still in need of a boost from monetary policy.
An increase in inflation, plus a predicted end to the stagnation in wage growth, lead many commentators to assume that the MPC will vote sooner rather than later to increase interest rates back to 0.75 per cent.
Only time will tell if the economic forecasts for the next 12 months come to fruition, and if they do, we could be moving back to a period of slightly higher interest rates, a fact that will please many savers.
The complexity of the modern, global economy has meant that only a minority within the Bank of England are hawkish in regard to any alteration in interest rates.
The MPC’s interest rate decision is based on multiple economic indicators such as unemployment, wage growth, Brexit fallout, and the performance of the global economy, and whilst the turbulence of the past few years still impacts economic performance around the globe, the Bank of England may be hesitant to make any big changes.
However, the general feeling in the financial world is that interest rates will be on the rise in the coming 12 months, so savers should stay vigilant in keeping aware of the latest economic news to ensure they stay ahead of the curve in regards to their saving portfolio.Last updated: June 20th, 2018