At a glance – UK Interest Rates

At a glance – UK Interest Rates

On the 10th of May there was a meeting at the Bank of England to decide whether or not to increase interest rates. The votes were cast and the overwhelming decision was made to keep rates at the same level of 0.5%.

For now nothing changes, but analysts are split. Some are predicting a number of hikes over the next year and some are saying we could continue with low interest rates for years to come.

If rates do go up then why may it matter to you?

In its simplest terms, if interest rates go up, savers benefit and borrowers lose out. Unfortunately, the vast majority of people fall into the latter category. Britons on average save far less for retirement than they need to, if they want to enjoy the typical wish-for income of roughly two-thirds of their working earnings.

Those of us with mortgages or other loans, be it car finance or credit cards, will be paying more. Another less obvious impact would be a decrease in pension transfer values, which are based on Gilt yields and have been at record highs, with some schemes offering 30 times the promised annual income to members who exit (e.g a pension promising to pay you just £5,000pa could give you £150,000 to transfer out).

Expats who earn in different currencies could face loses when sending money back home as higher interest rates normally come hand in hand with a stronger pound. On the flip side if your company pays you in the UK and you are living abroad, then life does become cheaper.

What your financial advisor should be talking to you about if a rise happens.

On the upside an increase in interest rates would make fixed interest investments more attractive, which is good news for risk adverse clients. Maybe a small change to a portfolios weighting to hold less equities and therefore reduce exposure to market volatility could be a good idea. For clients who are looking to expand their property portfolio, fixed interest investments could also become a more appealing option, as a combination of more expensive mortgages and a stronger pound could see UK property offering significantly less returns.

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