The Money Stop

We are living in an age of uncertainty when it comes to interest rates and this could have a big effect on savers and borrowers.

The Bank of England (BoE) has revealed in its quarterly inflation report that there is “considerable uncertainty” over inflation rates in the short and medium term.

It comes following a recent decision by the BoE to freeze interest rates at 5.25 per cent, which followed three rises since August 2006.

“The [interest rate setting Monetary Policy] Committee noted at its February meeting that the central projection, under the assumption that bank rate followed market yields, was for inflation to settle around the target in the medium term, though the near-term profile was unusually volatile,” said the BoE report.

“Moreover, there was considerable uncertainty about the path of inflation, both in the near term and further ahead.

“Given that outlook, and bearing in mind the balance of risks, the committee judged that no change in bank rate was necessary at that meeting to bring CPI [consumer price index] inflation back to the target in the medium term,” it noted.

People who have taken out a mortgage or a loan need to keep a close eye on interest rates in the coming months, with many industry figures predicting two more rises of 0.25 per cent.

Borrowers should always ensure that they are financially strong enough to deal with a rise in interest rates.

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