Thursday, 14 December 2017 12:44

Bank keeps base rate at 0.5% after rise last month

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Bank of England Bank of England

The Bank of England has today kept its base rate at 0.5% after doubling the rate last month from 0.25% to 0.5% - the first increase for a decade.

With inflation rising to 3.1% some commentators have suggested the Bank of England will be under more pressure in future to increase the rate to keep inflation under control, however there are no immediate indications the rate will rise in the very near future.

Shilen Shah, bond strategist at Investec Wealth & Investment, said today: “As expected, the BoE left interest rates on hold following the November rate increase. Despite the generally positive global backdrop, the UK currently seems to be stuck in the slow lane with Brexit causing corporates to become more cautious. Inflation is likely to peak very soon, however the squeeze on real earnings means consumer demand is likely to remain tepid – especially as employment growth has stalled.

In the US, Mrs Yellen in her final press conference confirmed that the US central bank was increasing the US Fed Fund rate by 25bps to 1.5% and some experts have predicted a rise to 2.5% within two years is possible as US monetary policy seems to be on a path of normalisation, with the Fed indicating that it is looking for three further interest rate increases in 2018, said Mr Shah.

With the UK economy continuing to grow, albeit slowly, and unemployment declining to 4.3%, its lowest in over 40 years, last month was seen by the Bank of England as the right time to increase the rate. Bank of England Governor Mark Carney has indicated in recent months, however, that any increases in the base rate are likely to be gradual and small.

Leading Financial Planner and Financial Planning Today columnist Julie Lord, a Certified and Chartered Financial Planner, said last month she did not expect major repercussions for Financial Planning clients from last month's increase. She said: "I can’t see that this will significantly affect our Financial Planning clients who are generally older with little focus on debt, as they only keep sufficient funds in cash for emergencies and have everything else invested."

Chartered and Certified Financial Planner Martin Bamford, managing director of Informed Choice in Surrey, said last month: "I’m surprised to see the Bank of England increase rates against a backdrop of a fragile economy and uncertainty around Brexit negotiations.

"We should keep in mind that this is the Bank returning rates to a pre-referendum emergency footing, rather than signalling the economy or banking sector are out of the woods yet. The Bank will need to be cautious about signalling any future rate rises, which could choke off consumer confidence and trigger panic selling on investment markets. The British economy is not yet ready for a serious rate rise."


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Last modified on Thursday, 14 December 2017 12:53
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