Credit Cave

Well after months of expectation, the Bank of England committee decided to raise the base rate of interest in the UK to 5%, that’s the highest it has been in 5 years.  Now, while that may seem a negative figure, please take into consideration how high interest rates were during the late eighties and early nineties.

So why did they do it?  To keep down the growing rate of inflation, consider the rate increase as one way of being cruel now to be kind later.  If inflation continues to climb consumers will end up priced out of the property market and stop spending in the shops.  Well, at least that’s the reasoning behind it.

To be honest, I will feel the pinch once this comes into affect.  My interest only mortgage will see a nice rise month-on-month, but we will be able to cope with it just like most others.  It’s the people who are in deep debt with bad debt on credit cards and store cards who will feel it most, which will probably be reflected in the number of bankruptcies in the coming months.

The bad news, if a rise in interest rates isn’t bad news enough, is that most city analysts are calling for a further rates increase to 5.25% in February 2007.  And if the rate increases after that I think the UK economy will really be in trouble.

This entry was posted on Friday, November 10th, 2006 at 2:02 pm and is filed under Interest Rates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.