When will interest rates rise?

When will interest rates rise? main image

Its a question that many of us would like to know the answer to, especially when looking at our saving accounts and mortgages, but the truth unfortunately is not that easy to predict as you will probably have realised from the numerous news articles over the last year or so, all questioning whether the time is nigh!

Even the financial analysts and journalists all have different opinions about when interest rates will rise, although this is largely due to Mark Carney the Governor of the Bank of England giving out mixed signals over the last 12 months. If he doesn’t know who does?

Whether you are considering a fixed rate mortgage or tying up your money in a long term savings account; having some idea of when interest rates will rise is important to ensure you get the best deal and don’t lose out because you have either made arrangements too soon or too late.

Based on the Bank of England’s latest statement, most financial analysts are forecasting changes to be made between late 2014 at the earliest and the end of the first quarter of 2015.

Stop Press: as we were about to publish the Bank of England minutes reveal that 2 of the 9 member committee voted in favour of a rate rise – which is sure to put greater pressure on an earlier rise.

Depending on whether you are a saver or a borrower, this could be good news, although the rate increase is likely to be 0.25%, with possible further increases taking the rate to 1% by the end of 2015.

The reason for the uncertainty is the change in the way the Bank of England has based its reliance on certain key economic factors.

You may remember that initially the trigger to raise interest rates was linked to the unemployment rate, but this all changed when the threshold was achieved unexpectedly ahead of forecast.

Forced to re-think, the B of E changed its position, linking any future increases to a range of other economic factors including:

•    The growth of our economy
•    Rate of Inflation
•    Unemployment indicators
•    Wage growth
•    Strength of sterling

There are a total of 18 factors in all, but these 5 are the key indicators that are likely to have the greatest influence on the B of E’s decision making.

The problem for the likes of you and I is that every time Mark Carney speaks, the financial journalists swoop to make a story from it and of course, the press being the press, the more dramatic the headlines the more newspapers they sell – so I guess we need to try and read between the lines and makes some sense of what the analysts and whiz kids of the ‘square mile’ report, until such a time when the interest rates do actually change.

So when will interest rates rise Mr Carney?

Call me a cynic but my money is on it being after the general election in May 2015! Watch this space.


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