Interest rates on hold but BoE issues warning of future rises
The Bank of England has voted to maintain UK interest rates at 0.25%, but in doing so, triggered speculation that continued growth in the economy could result in rates rising sooner than the market anticipated, possibly in November.
The Monetary Policy Committee voted 7-2 in favour of keeping the present rate, stating:
Since the August Report, the relatively limited news on activity points, if anything, to a slightly stronger picture than anticipated. GDP rose by 0.3% in the second quarter, as expected in the MPC’s August projections, although initial estimates of private final demand were softer than anticipated.
“The unemployment rate has continued to decline, to 4.3%, its lowest in over 40 years and a little lower than forecast in August.
“Recent developments suggest that remaining spare capacity in the economy is being absorbed a little more rapidly than expected at the time of the August Report, and that inflation remains likely to overshoot the 2% target over the next three years.
“All MPC members continue to judge that, if the economy follows a path broadly consistent with the August Inflation Report central projection, then monetary policy could need to be tightened by a somewhat greater extent over the forecast period than current market expectations.
“A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target. All members agree that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.
In issuing its caution about possible future rates changes, the Bank stated that the growth outlook was slightly stronger than it had predicted in August.
Inflation continues to rise faster than the Bank's policymakers had expected just a month ago.
Andrew Turner, chief executive at Commercial Trust, commented:
Today’s announcement is an interesting one, as many people had anticipated only minor increases, if any at all, to interest rates, in the short term.
“The Bank of England’s statement suggests that economic growth and rising inflation could expedite a sooner rise in interest rate, with a November increase now a real possibility.
“Buy-to-let landlords have been able to take advantage of the record low interest rates for the past year, but the opportunity to do so, through further purchases or remortgaging, could be about to change.
“There is still time for investors to make the most of low interest rates on mortgages, but should the MPC increase rates in the near future, this decision may well result in buy-to-let mortgage product rates going up.
“Those landlords looking for security have the option to obtain a fixed rate for a number of years, to safeguard against any rates increases.
“Commercial Trust can help investors to determine the most suitable product and rate to meet their goals.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.