Bank Interest Rate Rise Risk

Bank Interest Rate Rise Risk.

In an interview on Sky News earlier this week, one the Monetary Policy Committee Members at the Bank of England, Ben Broadbent, has suggested that he is in favour of interest rate rises.

He suggested that moderate rate rises:

• Would not affect the recovering economy
• Would not affect people’s mortgage payments as many mortgage rates still remain at the 4%-5% level.
• Would not affect demand for the Government’s Help to Buy scheme, designed to stimulate the property market from the bottom up.

Comment

An increase in interest rates would strengthen the pound meaning British goods become more expensive overseas.

Would make foreign imports cheaper, good for raw materials for British manufacturers but poor as more foreign goods would come in to compete with British made goods.

People are fickle.  Interest rate increases would affect consumers views and focus us all on looking at our budgets.  In short, consumer spending would fall.

Banks will increase lending interest rates.  New capital reserve requirements are place so Banks must be financially more stable and therefore the cost for Banks borrowing from the Bank of England would rise as well as inter-bank lending rates.  Margins have to be maintained so naturally that could would be passed on to the consumer.

We suggest the economy needs another 18 months or so before the Bank of England is in a strong position to increase rates.  Make no mistake though, interest rate rises are coming.