What Lies Ahead for Interest Rates?

Despite the general consensus from earlier in the year, the Bank of England looks as though it will not raise rates from the current figure of 0.5%.

The less positive outlook for the UK economy caused two members to vote for a rise with the remaining seven voting otherwise in the previous meeting.

The emergence of an uncertain outlook for the economy in recent weeks will most likely product a similar result.

Inflation is key and as the Consumer Prices (CPI) Index has not risen from the current rate of 2.4% a rate increase is not seen as being necessary. Some upward pressure on the CPI could result from rising global oil prices in the coming months however.

Strong retail sales in May could bolster the argument for a rate rise, however the spate of closures in the sector will most likely dampen the likelihood of overly enthusiastic conclusions being drawn from this quarter.

Manufacturing was another weak point, as the Office for National Statistics produced data showing a 1.4% fall in activity in April, the worst month in six years.

Trade and construction were also concerns, contributing to a fall in sterling as investors began to doubt an imminent rate rise.

Wage growth slowed as average earnings rose 2.5% in April, a fall of 0.1% from the previous month, adding further impetus to the likelihood of rates being held as they are.

It's possible that there will be a rise in August pending further examination of the data by the Bank of England.

The Bank could still delay a rise until November according to Howard Archer of Ernst & Young:

"There will need to be sustained clear evidence that the UK economy has improved since the first quarter for the MPC to act, "

However, the longer the Bank waits, the more pressure will build on the institution to normalise rates as we approach the end of a decade of historically low rates.

Your financial adviser can construct a long term plan for you that will enable you to invest for the long term no matter the short term fluctuations.

The value of investments and income from them may go down as well as up and you may not get back the original amount invested.

Information is based on our current understanding of taxation legislation and regulations which is subject to change.

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