Bank of England Raises Interest Rates …. What Does It Mean For Savers & Investors?
Following the latest meeting of the Monetary Policy Committee the Bank of England has decided to raise the UK interest rate to 0.75%.
The decision to raise the interest rate came after the rise to 0.5% last November, and after what seemed an eternity of predictions (and hints by governor Mark Carney) that rates would resume an upward trend.
So in practical terms what does this all mean for savers and investors?
Firstly, lets look at the reason behind the rate rise. The principal reason for the rise has been to keep the inflation rate in check (which remains stubbornly over the 2% target). The Bank appears to have acted now as a result of a belief that the economy will continue to grow, that the employment market will strengthen and that wages will begin to rise in real terms after several years of restraint.
So in many ways the Bank of England’s decision indicates broadly positive times ahead for the UK economy. And that, remember, is even with Brexit (and the increasing prospect of a hard Brexit) coming up in 2019.
Prospects For Savers and Borrowers. After the interest rate rose 0.25% last November borrowers started paying more but rates for savers changed very little. So savers hoping for better returns might want to look at other uses for money they don’t need to hold in cash, such as longer term investments or pension planning.
Prospects For Investors. Investors with equities should consider that current low interest rates have most likely helped stock markets around the world remain buoyant. Rising rates here (and in the US) could serve to moderate market returns. Investors with bonds should consider that interest rates and bond rates are closely related. A rise in interest rates normally sees bond prices fall and yields rise.
Other Considerations. The interest rate rise could impact the UK property market – although the Bank seems to believe that the impact will be small. For example, monthly repayments on a £200,000 mortgage balance are likely to rise by only around £25.
The rise could also be positive news for upcoming retirees who are considering buying an annuity in order to provide an income in their retirement. Annuity rates generally shadow yield rates on bonds and annuity rates now also seem to be on an upswing after reaching a low point in 2016.
The latest interest rate rise certainly seems to suggest that more dynamic times are ahead for savers, investors and retirees. It underlines the vital importance of reviewing your savings and investments on a regular basis, and of taking the best professional financial advice.