Mark Carney, the Governor of the Bank of England, yesterday announced a 0.25 per cent rise in the base rate, bringing it up to 0.75 per cent from 0.5 per cent.
It was headline news on last night’s broadcast news channels and it’s all over the front pages today. Why all the brouhaha about this? 0.75 per cent doesn’t seem very high, does it? And a rise of 0.25 per cent – surely that’s a drop in the ocean?
A decade ago, this wouldn’t have raised any eyebrows but it’s made all the papers because it’s only the second time in a decade that interest rates have risen, and, at 0.75 per cent, the rate is also a 10-year high.
The rise has finally come after many hints over the past four years by Mr Carney that rates would have to increase but in most instances the call was never made. So much so that he’s been labelled the unreliable boyfriend.
Yesterday, that all changed and the mocking moniker moved aside. To be fair, it was never an easy call to make because, just when it seemed the economy was overheating and interest rates needed to rise to dampen things down, a new set of statistics would be presented to the Governor that suggested things weren’t so hot after all so the rise was placed on hold.
Now, however, the Bank says a pick-up in the economy is being supported by household spending, thus this light pressure being applied to the brakes.
This morning on BBC Radio 4’s Today programme, Mr Carney reiterated that while the Bank of England envisages further rises in interest rates, like this one, they will be modest and infrequent. In five years’ time, the base rate could be between 2 per cent and 3 per cent.
Savers who keep their money in deposit accounts with a bank or building society probably know not to expect the meagre rate of interest they get to increase by much, if at all, as a result of yesterday’s base rate rise. However the news that the outlook is for interest rates to remain at relatively low levels will be crushing.
Inflation, measured by the Consumer Prices Index, is currently 2.4% which means that it is eating into savings and while it is forecast to fall back to 2 per cent by 2020, savers are unlikely to rejoice.
Those looking for long-term growth potential for their hard-earned cash should consider stocks and shares investments. The value of shares can fall as well as rise.