An interest rate rise would be good news for savers, but not such great news for borrowers as it could impact everyone from householders to businesses. So, will there be a rise in 2016?
The Bank of England has had the interest rate set at an all-time low of 0.5% ever since March 2009. Despite there being much talk of an imminent interest rate rise a few months ago, the hike is now looking further off. Economists at the Bank of England have even suggested that the rate could drop. However, the Governor of the Bank of England, Mark Carney, issued a warning that although a hike hasn’t been voted on by the Monetary Policy Committee, which sets the rate, householders should prepare for a rise as it is a ‘possibility not a certainty.’
Even a small rise in the interest rate of 0.2%, for example, could have major repercussions. Savers will get an improved return on their assets, while those with debt will see their repayments increase, with overall spending subsequently dropping across the economy. Those with mortgages will remain unaffected if they have fixed interest rates, but, for home-owners with variable interest rates linked to the Bank of England, a rise could be bad news. For small businesses that are already struggling to repay debt, an increase of even a fraction of a percent in the interest rate could make servicing debts untenable and cause them to go bust. Likewise, those who export from the UK may enter difficult times as the pound becomes stronger.
Whether or not we see an interest rate rise early in 2016, later in the year or even into 2017 remains to be seen. However, one thing is clear, when the rate rises do eventually come, very few people will be completely unaffected.