Published: Fri, August 03, 2018
Finance | By Cynthia Curry

What does interest rate rise mean for mortgages and savings?

What does interest rate rise mean for mortgages and savings?

At midday on Thursday the Bank of England is expected to raise interest rates for only the second time in a decade.

The Bank of England has increased interest rates to their highest level for almost 10 years after the summer heatwave helped the economy bounce back from a snow-hit start to the year. "Serious end-user demand is back on the market and marginal hikes in home loan rates are unlikely to deter buyers", Puri said.

The projected inflation rate is above its targeted comfort level of four per cent. If interest rates are 1% or more by the time the economy sails into stormier seas, policymakers will at least be able to cut rates a couple of times before cranking up the printing presses for more QE.

The RBI today increased repo rates by 25 basis points to 6.5%, the second hike in two months, making housing and automobile loans costlier.

The accusation was levelled at Carney after May's policy meeting, which many had expected would see a rate hike.

Similarly, the reverse repo rate, at which it borrows from banks, was also raised by a similar proportion to 6.25 per cent.

The BOE's reading of market rates now signals that another 25-basis-point increase isn't likely until the first quarter of 2020, compared the third quarter of 2019 seen in the previous round of forecasts.

"Whilst costs for Scottish households with variable interest rate mortgages will rise, the overall cost of borrowing remains low by historical standards".

She said: "The Bank of England must tread carefully when it comes to further changes in interest rates".

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But if you're on a variable or tracker rate mortgage, your payments are likely to go up.

He said "limited" and "gradual" increases were required to bring inflation down to its 2 per cent target now that the United Kingdom economic growth appeared to be picking up again.

This has driven the prices of fuel - the biggest item on India's import bill - to record highs at a time the rupee is testing new life lows, raising the threat of imported inflation.

"Weather effects - both the snow-related disruption in February and March and the unseasonably warm weather and long sunshine hours in May and June - seemed to have accounted for around half of the second quarter rise".

The RBI's policy statement also mentioned that minimum support price (MSP) hike as the primary factor stoking inflation this year.

Iain Lindsay, co-head of global portfolio management within the global fixed income team at Goldman Sachs Asset Management, said "today's rate hike is a significant, albeit not an unexpected move". Based on an overall assessment, it retained its GDP growth projection for 2018-19 at 7.4 per cent. The mistake they made was cutting rates in response to the Brexit vote.

Five of the six members on the panel voted for a rate increase in the latest policy review.

Clouding the outlook for the United Kingdom central bank is Britain's looming withdrawal from the European Union.

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