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Market News

July 2010

Interest rates set to rise?

Two former Bank of England policymakers warn that interest rates may have to increase more sharply than expected in order to keep inflation under control.

Two senior economists, Sir John Gieve, an ex-deputy Governor of the Bank of England, and Charles Goodhart, a previous member of the Monetary Policy Committee, have called into question the widely held belief that interest rates will remain low for a prolonged period.

The warning reported in the Telegraph, signals a more optimistic outlook for the economy but will come as a shock to many homeowners, who have become accustomed to lower mortgage repayments.

Sir John said that he expected interest rates to start rising sharply once the economy recovers. He warned "I wouldn't be at all surprised to see interest rates at 2.5% a year from now."

Most economic commentators expect rates to be between 1% and 1.5% this time next year, however, Ernst & Young amongst others, has predicted they will not rise until January 2014.

The fact remains that whilst there may be an argument about the timescales, at some point rates will go back up to what are perceived as more "normal" levels.

Fixed rates in particular are now at an all time low and those homeowners currently enjoying low variable rates may be wise to consider switching to a more secure product before the inevitable happens.

• May 2010
  • Home Information Packs to be abolished this week
• February 2010
  • Interest Rate Outlook 2010
• October 2009
  • House prices back to September 2008 levels
• August 2009
  • Mortgage Volumes for July
• June 2009
  • It’s not all doom and gloom
• December 2008
  • The Bank of England has cut interest rates by one percentage point, from 3% to 2%, the lowest level since 1951
• November 2008
  • The Bank of England has cut the base rate by 1.5% bringing it down to just 3%