Interest rates

Yesterday the Bank of England made some pretty interesting announcements about what would happen to the base rate over the medium term. The main news was that unemployment has to reduce significantly before the Bank intends to increase the base rate.

I’m not an economist, but I do take a keen interest (no pun intended!) in economics, and I’m personally not expecting unemployment to suddenly get much better.

The Conservative government is ideologically opposed to increasing spending in order to create jobs. The next general election isn’t until 2015, and now that we have fixed term parliaments we can be almost completely certain that it won’t come before then. (I’m not convinced by any polls or research what will happen in the 2015 election, so I’m only comfortable to predict what will happen during this government.)

I’m feeling quite smug because only on Monday did I phone my mortgage provider and get a quote for a new tracker rate deal, before any of this hit the press. I can imagine (I have not checked yet) that the deals on offer will have changed after this news. The banks offer their tracker deals with a certain amount of expectation of rates going up or staying the same. As soon as there is certainty that the rate will stay the same at 0.5% for a while, there isn’t much customer value in a higher cost but more secure fixed rate deal. Therefore, they will increase the cost of the tracker.

I imagine that there will be lots of people who are in the same boat as me, whose rental profitability is chiefly driven by the cost of their capital and interest mortgage, and who take a keen interest (again, apologies for the pun) in what happens at the MPC each month.

It would be comforting therefore to listen to the interview with Mark Carney this morning where he appeared calm, intelligent, trustworthy and generally a good sort of person to be in charge of the BoE. I’m certainly comforted, and am looking forward to hearing more from him.

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