Five Questions About: Interest rates
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Your support makes all the difference.Will rates rise in May?
There has been speculation that the Bank of England base rate could rise from its record low of 0.5% in May, but many economists have changed their tune. Most now predict that we won't see a rise until August at the earliest.
Why are rates likely to stay low?
Recent economic data was weaker than had been expected, indicating the fragility of the economy. And while inflation is running at 4%, double the Government's 2% target, it slowed in March. Raising rates too quickly could put us back into recession.
How high will rates go?
In a survey by the BBC, 12 out of 22 economists said rates would be at 1% by the end of the year, six said 1.25% and one said 1.3%. Two predicted rates will only rise to 0.75% by the year end, while one said rates would still be at 0.5%. Interest rates are expected to rise gradually, but any increase will mean higher borrowing costs and those with variable rate mortgages will see their monthly repayments go up.
Is now the time to lock into a fixed rate mortgage?
Lenders have already increased the cost of fixed rate mortgages in anticipation of an interest rate rise, so there is a price to pay for the peace of mind of knowing your payments will remain the same when rates do eventually go up. If you're on a variable mortgage, you should work out how much of an increase in payments you can afford – if you think you'd struggle with only a small hike in costs, a fixed rate deal is likely to be your best option.
What about savers?
An interest rate rise would certainly be good news for savers, but don't wait for rates to rise to seek out decent savings rates as plenty of accounts pay six or more times the current Bank of England base rate.
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