Base rate increase? Not so sure...
So there are a few things that people keep banging on about at the minute and they are Donald Trump, Brexit and a base rate increase. The thing that has been spoken about for the last 6 years though is the base rate increase! People are obsessed with it and I just do not know why. Carney has been spurting for years how interest rate must rise, then Brexit happens and they decide to cut interest rates to prevent a problem that was never there. So when there was an increase at the back end of last year people assumed this would lead to further increases. Contrary to the belief, they was correcting a mistake which should have never been made. Now every month I see stories to back interest rate hikes and why it needs to happen.
I’ve been shouting from the roof tops that interest rates need to stay the same. All the chat from Bank Of England is merely to raise awareness on what peoples finances would do if rates were to rise. The Bank Of England does not believe the public can afford rate rises in its current state, so they want to keep shouting it at the media and the public to make them people aware of their own personal situation. What they should really do is stop making consumer credit so readily available and encourage the country to repay debts instead of increasing them (which I know is quite rich coming from a mortgage broker). At the start of 2018 consumer credit lending was £207.5 Billion, this had increased from £194.3 Billion in January 2017. Refer to the link for the facts on debt levels.
Now if interest rates increased, with consumer debt increasing it creates a recipe for disaster. Then you add stagnant wage growth and the cost of living going through the roof, there is absolutely no way this country can afford any interest rate increase at the minute. We need to focus on what is happening within the country before we look at what other countries are doing with their base rate. As a country we need to focus on reducing consumer debt, the banks need to be responsible for making it a lot harder to obtain car finances, credit cards and loans. The only way this will be done is with the regulators stepping in, which they like to do. They have put their nose in everywhere else so why does this area of lending still seem like the wild wild west?
Recently we got some inflation figures announced we was on target for an increase in base rate. Let’s be honest this was boosted by a week pound and it is clear what has happened as this initial boost has levelled itself out with todays release of Inflation figures. UK inflation much softer than expected. Annual CPI +2.4% (exp. +2.6%) Monthly CPI 0.0% (exp. +0.2%) Core CPI +1.9% (exp. +2.2%) Monthly core -0.1% (exp. +0.3%) Sterling tanking, now at a 10-month low and a break below $1.30 seems likely. If the base rate does increase this is Mark Carney creating an insurance policy against the risk of a no-deal Brexit. AT 0.5% rates can not decrease any further, but at 0.75% or 1% they can go back down if a cushion is needed. If the base rate increases by 0.25% this effects the average mortgage by £20 per month. Average balance of consumer credit per home - £7500, this is £62.50 a month In interest averaged at 10%, which puts in to perspective the minimal difference a small rise would make right now.
One last sign that we throw in to the mix is the complete demise of the high street and some larger corporates at the minute. To name a few this year include Poundworld, Toys R Us, Maplin, House of Fraser. A few companies that are on the brink of collapsing include Debenhams & Gaucho being announced today. What happens to the rest of the companies that have been propped up by cheap lending if interest rates rise? I think we all know the answer to that question, it creates a domino effect of companies going in to administration. Lets add property prices on the decline throughout the country and falling at a rate of knotts in London surely it is clear that there is no way interest rates can increase at the moment?
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