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UK Interest Rates Likely To Rise Again

UK home loan, loan, credit card and consumer borrowers are no doubt tired of all the recent bad news. The Bank of England’s Monetary Policy Committee (MPC)’s shock rise in the base interest rate, to 4.75%, so soon after having charged lots of money on their credit cards during the summer holidays meant that many UK homeowners were faced with increased mortgage repayments at a time when they also needed to make increased credit card repayments. Unfortunately, however, the doom and gloom may not yet be over!

Last month, Mervyn King, Governor of the Bank of England, warned that there was a 50-50 chance that the UK inflation rates would rise to 3% within the next two years, well above the Bank of England’s target inflation rate of 2%. With the underlying Retail Price Inflation rate rising to 3.3% in August, up from 3.1% in July, it now highly likely that the MPC will need to carefully consider whether or not to raise interest rates again when they meet next month. According to a number of prominent economist, the next announced rise in UK interest by the MPC is likely to happen sooner, rather than later, if the Mr. King and the Bank of England are serious about keeping UK inflation in check as the Consumer Price Index (CPI) rate of inflation rose for the fourth successive month.

Brits with home mortgage loans will not be happy to hear this news as, invariable, any announced rise in the Bank of England’s base rate interest rate will have an immediate effect on the amount of their home mortgage loan repayment, unless they have a fixed rate home mortgage loan. Those with personal loans or credit cards may be able to hold off any immediate impact on their monthly repayments for a short while, but it is looking increasingly likely that Britons are going to be having an unpleasant winter repaying our summer overspending habits!

With winter rapidly approaching, the additional cost of heating our homes, and the Christmas and New Year holiday seasons not too far off, all this sounds like it could mean more financial hardship for Brits and many may well now be thinking that this would a good time for those with home loans and UK credit cards to pause and give some very serious thought to whether or not they really need to be spending any of their savings before the Christmas holiday season, as it certainly looks like the bearer of bad news is not going to be too far away.

Richard Smith
14th September 2006

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