Are interest rates set to rise due to inflationary pressures? - October 28, 2016

The Office for National Statistics (ONS) last week published the latest Consumer Price Index (CPI) figures which show that inflation went up from 0.6% in August to 1% in September. The Retail Price Index (RPI), which is a measure of inflation which includes mortgage interest, also showed an increase between August and September. This is the highest inflation has been since November 2014.

On first inspection it would be reasonable to assume that this increase would be attributable to the weak pound meaning that imported goods and services are more expensive to the UK consumer. The ONS though have said that there is “no explicit evidence” that this alone is responsible, although it is no doubt a contributing factor. Price rises are particularly prominent with food and clothing; essentials for all consumers. The recent public row between Tesco and Unilever is testament to this, and will undoubtedly not be the last such occurrence of this that we will see. Indeed tourism has increased since the drop in the value of Stirling and things such as Hotel prices are rising as a result.

Rising prices is bad news for savers in particular as high prices coupled with record low interest rates means that their money is worth less and not generating a meaningful return, and in real terms they are actually losing money. According to a number of economic experts; the likelihood is that within the next twelve months the rate of inflation will exceed the Bank of England’s target of 2%. The primary tool for controlling this will be manipulation of the Bank of England base rate, and so this is likely to rise in time.

In the current climate, with the interest rates at a record low, but potentially set to rise in the coming year, it may be worth reviewing your current mortgage arrangements and taking advantage of a low fixed rate mortgage deal. Equally if you are a saver you may wish to consider investing in an investment property. This will generate a much better return than ‘cash in the bank’, and should also enjoy long term capital growth.

At One 77 Mortgages a great many of our clients are currently fixing their own mortgage deal, purchasing investment property using savings, and even capital raising on their own home either for home improvements to enhance its value or for use as a deposit on an investment purchase.

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