THE BANK of England has signalled that interest rates may be increased earlier and higher than expected, in what could be good news for savers but bad for those servicing debts.
The Bank’s February inflation report, released on Thursday, said if inflation remains at its stubbornly high levels, monetary policy would need to be tightened “somewhat earlier and by a somewhat greater extent.”
Bank of England Governor Mark Carney (pictured) had previously suggested there could be two more increases over three years after rates were hiked back to 0.5 per cent last November.
The Bank’s monetary policy committee held rates at their current level on Thursday morning, but now analysts are suggesting the next rise could come as soon as May.
“The Bank upgraded its forecast for the UK economy slightly today, citing stronger global conditions. It now expects 1.8 per cent growth this year, as against 1.6 per cent forecast in November,” Ben Brettell, senior economist for Hargreaves Lansdown, said.
“Policymakers also said they will try and bring inflation back to their two per cent target more quickly than previously, which means rates could rise faster and further than investors had expected. The Bank’s rhetoric echoed that of September’s meeting minutes, which preceded the November rate hike.
“It now looks like the next rise could happen as soon as May – the next time the Bank’s economic forecasts are due to be updated.
“Prior to today’s announcement, markets were factoring in a 50 per cent chance of a rate rise in May, and an 80 per cent chance they’ll be higher by the end of the year.”
Giles Cross, chief executive of peer-to-peer business lender Folk2Folk, said consumers shouldn’t be waiting around for rate rise to help them.
“While a future rate rise is likely, current rates remain low,” he said.
“Despite last year’s rate rise, there are misconceptions as to when consumers will actually see the results, particularly as some banks are failing to pass this on. That said, rates would need to be hiked significantly to make a real noticeable difference to consumers.
“Those wanting a positive return on their money in real terms will need to look at alternative avenues.”
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