UK Interest hike!


Welcome to our blog. The subject on every journalist lips in the UK at the moment (besides Brexit), is the interest rate hike, and while I am in no way an expert on interest rates, I have sought to simplify and highlight the main pointers.

Who takes a hit? 

For the first time in more than a decade, the Bank of England has raised its benchmark interest rate. The bank interest rate has been hiked up from 0.25% to 0.5% and has been the first increase since July 2007.While the move was anticipated, it will affect almost 4 million households as rates on savings, Mortgages and loans change.

The change for avid savers should give a modest lift in returns and could see meagre returns currently received on their current account deposits. Anyone considering buying an annuity for their pension will also see better returns. Some lenders have committed to passing the 0.25% rise to savers. Nationwide said the bulk of savers will see improvements while New Castle Building Society said it would pass on the full rate.

Not all banks have been clear about plans and it is expected that some may attempt avoid or delay passing on the full impact of the rate hike. While this will certainly boost their profits, it may receive backlash from their clients.

Homeowner?

Those with variable rate mortgages, will feel the pinch the most. There are currently 8.1 million households with a mortgage and around 46% of them are a standard variable rate or tracker rate mortgage. Those with fixed rate mortgages will not be affected. It was calculated that the average outstanding balance on mortgages is 89 000 pounds which would see an increase of 12 pounds per month.

Holidays Abroad cheaper?

When an interest rate is hiked, an increase in the pound is also expected which results in cheaper holidays for Britons abroad, however the pound actually took a dip against the dollar and Euro after the BOE announcement. Experts say that with Brexit uncertainty at an all time high, the pound is not likely to return to their peak levels as they were before the Brexit referendum in June 2016.

Reasons for Increase

The interest rates are set by a panel called the Monetary Policy Committee (MPC). 7 out of the 9 members voted for the increase and justified the increase by highlighting record-low unemployment, increased inflation and stronger global economic growth. The BOE expected the economy to grow at a rate of around 1.7% per annum with 2 more interest rate increases over 3 years.

Have a pleasant week.