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Will Interest Rates Rise

The MPC (Monetary Policy Committee) is set to meet on the 9th of November for their monthly rate-setting meeting, one that is expected by many to result in a quarter-point increase in the base rate, pushing it to five percent – the highest level for five years.

The need for the rise has come mainly from continued growth in consumer spending, along with an increase in energy costs and a rising property market, all of which have pushed headline inflation to 2.4%, with many economists forecasting that it could reach as high as 2.8% by years end if no action is taken.

With a target of 2% inflation, it is clear that the economy is running too hot at present, and so a small increase in rates is needed to cool things and keep the stability that the economy has seen since the Bank of England took control of interest rates.

Interest rates were last raised back in August, taking them to their current level. At the time, the rise did have a dampening effect on the housing market, however this was short-lived, and probably only due to people waiting to see if successive rises were on the cards, rather than a decrease in affordability, something borne out by the recent continued growth in both house prices and mortgage approvals.

If the expected does happen, and the MPC decides to up the base rate to five percent, then this will have an effect on many mortgage holders, and those looking to take out any form of loan. The increase in rates will take a little while to filter through to the market as lenders up their rates to take the increase into account.

The outlook beyond this month isn’t certain, the Bank is due to publish an inflation report on November 15th which will shed more light on how the economy is performing, and should give some indications as to what the short-term future will hold for interest rates.