9TH AUGUST 2018
Interest rate increase and what it means for savers, mortgages and the stock market
Last week the Bank of England increased their interest rates from 0.5% to 0.75% after nine years and furthermore expects a growth of 0.4% in the second quarter, with a rebounding economy following an unsatisfactory first quarter. In this blog from Davenham Asset Finance, we look at the main effects for the UK population when it comes your savings, mortgages and other debts, and the stock market.
Stock market influences
Higher interest rates are not usually a stock market’s cup of tea, as they mean an increase in the return you can receive from leaving your money in the bank. However, it was expected by the stock market that the bank’s rates would change, and the increase actually creates more optimism for UK domestic stocks.
Effects on cash savers
Cash on deposit has decreased on average 13% of its buying power since 2009, which means after inflation each pound is now worth around 87p. With interest rates rising, it is likely that better deals will appear for cash savers, although it could take a while at first. It’s important to look around for the best rates, assessing the benefits as you go and finding what is right for you.
Households who are on variable or tracker rate mortgages will see their payments increase as a result of the interest rate uplift, however this is applicable to far fewer people than in previous years; Nationwide bank recently revealed the share of outstanding mortgages on variable rates dropped to 35% from its peak of 70% in 2001 – which is now its lowest ever, so the good news is the increase will only affect the minority of the UK population.
Timing of the interest rate change
Last November the Bank of England reversed their cut to 0.25% made after the result of the Brexit vote therefore this change to above 0.5% was already a plan in the making. The timing is therefore relevant now for the increase to interest rates as policy makers would have to cut rates in response if the economy were to worsen which would impact import prices and inflation.
Further effects on Brexit
The outcome could have been different if a soft Brexit deal occurred sooner and would have possibly encouraged an interest rate increase before now. If further negotiations turn in our favour and the economy is still at the forefront this time in 2019, the base rate could rise to 1%. It was unexpected that Brexit would cause rates to be cut lower than 0.5%, but as economic cycles take place for about 10-12 years on average, and rates can still move in both directions, it is unlikely that there will be a large peak in rates.
Davenham Asset Finance can assist you with any queries regarding the recent interest rate increase and how it could affect you as a business so speak to a member of the friendly Davenham team on 0161 832 8484 or email enquiries@davenham.co.uk.
Stock market influences
Higher interest rates are not usually a stock market’s cup of tea, as they mean an increase in the return you can receive from leaving your money in the bank. However, it was expected by the stock market that the bank’s rates would change, and the increase actually creates more optimism for UK domestic stocks.
Effects on cash savers
Cash on deposit has decreased on average 13% of its buying power since 2009, which means after inflation each pound is now worth around 87p. With interest rates rising, it is likely that better deals will appear for cash savers, although it could take a while at first. It’s important to look around for the best rates, assessing the benefits as you go and finding what is right for you.
Households who are on variable or tracker rate mortgages will see their payments increase as a result of the interest rate uplift, however this is applicable to far fewer people than in previous years; Nationwide bank recently revealed the share of outstanding mortgages on variable rates dropped to 35% from its peak of 70% in 2001 – which is now its lowest ever, so the good news is the increase will only affect the minority of the UK population.
Timing of the interest rate change
Last November the Bank of England reversed their cut to 0.25% made after the result of the Brexit vote therefore this change to above 0.5% was already a plan in the making. The timing is therefore relevant now for the increase to interest rates as policy makers would have to cut rates in response if the economy were to worsen which would impact import prices and inflation.
Further effects on Brexit
The outcome could have been different if a soft Brexit deal occurred sooner and would have possibly encouraged an interest rate increase before now. If further negotiations turn in our favour and the economy is still at the forefront this time in 2019, the base rate could rise to 1%. It was unexpected that Brexit would cause rates to be cut lower than 0.5%, but as economic cycles take place for about 10-12 years on average, and rates can still move in both directions, it is unlikely that there will be a large peak in rates.
Davenham Asset Finance can assist you with any queries regarding the recent interest rate increase and how it could affect you as a business so speak to a member of the friendly Davenham team on 0161 832 8484 or email enquiries@davenham.co.uk.