Will Interest Rate Increases Be Postponed

Published / Last Updated on 19/04/2018

Over the last year inflation has been creeping up with fuel price increases, clothing and imports costing more dud to the weak pound.

Pressure has been mounting on the Bank of England to increase interest rates to strengthen the pound and curb inflation.  The pound has strengthened over the last few weeks as speculation of an increase grows.  FTSE 100 has fallen amid trade war fears, Syria and indirectly, with the pound strengthening meaning that FTSE 100 firms profits will fall (they earn most of their profit overseas and when it is brought back to the UK and converted to sterling, profits will be lower).

Surpisingly, inflation has fallen for the last two months reducing pressure on the Bank of England to increase rates. 

Impact

  • The pound has weakened slightly
  • This means that company profits brought back into the UK and converted using a weaker pound are larger.
  • Meaning FTSE 100 has risen, in fact it has risen by nearly 4% in the last two months.

The Future

Mark Carney, Governor of the Bank of England, has suggested this week that interest rate increases will come this year but may not be as soon as next month, as many expected, citing uncertainty over Brexit negotiations and timing as a key driver to rate increases or indeed not.

We expect FTSE 100 to fall if rates increase.  You may wish to watch this space or lock in any profits you have made on FTSE 100 investment funds over the last 2 months.

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