The Bank of England has announced that it is keeping the base rate at its current level as the UK economy outperforms predictions, but the next increase could be sooner than expected.
Monetary Policy Committee (MPC) members made the decision in a unanimous vote to keep the rate at 0.5% after the Bank of England recognised that the UK economy, led by global trends, has been expanding at its fastest pace in seven years. The Bank’s economic growth forecast for 2018 has now been raised to 1.7%, up from the 1.5% predicted back in November.
But the next rise is expected to be earlier and larger than the Bank predicted in November, when it forecast two more 0.25% rises over three years.
The MPC said: “The Committee judges that… monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November report.”
Predictions among economists suggest the next interest rate rise could come in May, a view that is echoed by Capital Economics senior economist Paul Hollingsworth. He said: “Today’s releases pave the way for an interest rate hike in May, and we think that the MPC will hike a further two times this year, taking Bank Rate to 1.25%.”
What are the implications?
For savers, rising interest rates could be good news as high street banks will have to raise their interest rates on savings accounts accordingly. However, mortgage holders who have enjoyed historically low interest rates since 2010 may need to prepare for the hike, which could increase their monthly payments.
Of the 8.1 million households with a mortgage, almost half are on a standard variable or tracker rate – both of which follow the Bank of England base rate and could therefore match any increases seen this year.
Ishaan Malhi, who founded online mortgage broker Trussle, said: “We may not see another interest rate rise for a few months, but it’s looking like it won’t be long before mortgage rates begin to climb.
“Low interest rates and government subsidies have encouraged banks to lend, but the days of cheap credit could be numbered.”
