Osborne: Interest rate rise could be on the horizon

Chancellor George Osborne has indicated a Bank of England base rate rise could be on the horizon in a speech delivered in Cardiff today.

osborne-posterized-200x200Osborne said the decision to raise the rate is up to the Bank of England alone, but added that US Federal Reserve rate increase on 16 December has started a discussion on how and when the UK begins to move out of a world of ‘ultra-low’ rates.

He said that higher interest rates are a sign of a strong economy, but that the government needs to monitor the level of debt across families, as well as the wider economy and backing savings.

“So I’ve created a powerful new Financial Policy Committee in the Bank of England that can check overall levels of debt in the economy and deal with specific risks such as the buy-to-let mortgage market,” he said. “These steps are not always popular, but they make our economy more resilient,” he said.

In late December, Moneyfacts.co.uk suggested the UK’sclose ties to the US would mean the Bank of England would follow suit with an increase, and that this would in turn affect swap rates, which are linked to mortgage rates.

Several industry experts estimated a rise would not be seen until mid-2016 and possibly later, and would likely not exceed 0.25%.

However, even a small rise could affect borrowers as 26% of homeowners would have real difficulty repaying their mortgage if their monthly payments increased by just £99, research by TSB showed.

Interest rates have been kept at a historically low level of 0.5% since 2009, meaning many borrowers have not experienced a rate rise during their mortgage term.

Bank of England policymaker Martin Weale said in December that he is unlikely to vote for higher interest rates in the near future, as a surprise pause in weight growth has made the need less immediate.

However, he did say that a rise was still possible as eight other members sat on the Monetary Policy Committee.

As Osborne sounded the alarm that rates may soon rise he delivered further gloomy news for the UK economy.

On the BBC Radio 4 Today programme, the Chancellor said: “At the start of this year, our economy faces a dangerous cocktail of threats from abroad, from falling stockmarkets in places like China, to instability in the Middle-East.

“Our antidote is to go on putting our own house in order here in the UK so far from mission accomplished on the economy, 2016 is the year of mission critical.”


Source: Mortgage Solutions


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