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How will an interest rate increase affect you?

Interest rates are on the increase

Authored by Phil Meekin

Phil Meekin

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Approximate read time: 2 minutes

Is that good or bad news for you?

Last week saw massive volatility on the US stock market. The underlying causes were attributed to fear of inflation and resultantly increased interest rates. It is also thought by some that electronic trading can exacerbate volatility. It is estimated that some 50% to 60% of trading on a typical day is undertaken automatically, reaching 90% when the market is volatile.

Stock values plummeted before making a recovery but then slid again. They remain very jittery.

When stock and share values fall, it can have a long-term impact on pension and trust funds, and make it difficult for larger corporations to raise equity through share issues. However, perhaps the biggest short-term impact is on consumer and business confidence.

So why should we be concerned about the US? The fact is we operate in a global market and as a consequence, markets across the world influence one another.

Perhaps this is why Mark Carney, Governor of Bank of England, decided to issue a statement to announce that the Bank Rate in the UK was remaining unaltered at 0.5%. The Bank of England uses the manipulation of interest rates as a tool to control inflation. Price stability in an economy is important – it gives confidence to people and businesses to save and invest.

Mark Carney outlined the Bank’s view of the UK economy, stating that inflation was in excess of the government’s 2% target, following the big fall in the value of sterling after the Brexit vote. At the same time, unemployment is at its lowest level for over 40 years. Companies are having to compete hard with each other to recruit and retain workers – which inevitably will lead to wages increasing and ease the squeeze on living standards.

This could stimulate growth and inflation, so in order to achieve steady growth and gentle inflation, Mark Carney hinted that anticipated increases in the Bank Rate may come sooner than originally anticipated.

Higher interest rates are good news for savers but will put up the cost of borrowing. If you are a consumer with a large mortgage or are running a business which is only marginally profitable and has significant borrowing, an interest rate increase could cause you real problems.

If you are struggling with money contact us now & let us help you turnaround your situation.

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