Last week marked the ten year anniversary since the UK experienced a rise in interest rates. The Monetary Policy Committee (MCP) last voted for an increase on July 5th 2007.
For the past decade consumers have suffered miserable returns on their savings accounts. Yet for mortgage customers this decade of falling interest rates has been a boon, with thousands of homeowners never having experienced a rate rise. High street lender’s typical mortgage rate has fallen from 5.8% in July 2007 to 2.6% today and borrowers are benefiting from even lower rates available through intermediaries.
The flip – side of maintaining the current status quo is that the increasing levels of consumer credit are causing the Bank of England (BoE) concerns, they warn that both mortgage lending and consumer credit are a key risk to the UK’s financial stability.
On the eve of the financial crisis of September 2008, consumer borrowing stood at £209 billion, it currently stands at £199 billion. Hiking the rate would help to slow consumer borrowing, but makes the debt more expensive placing pressure on household budgets. This move could slow consumer spending activity to such an extent it has a negative impact on the UK’s economy.
BoE governor Mark Carney, speaking at the ECB Forum on Central Banking recently said ”When the MPC last met earlier this month, my view was that given the mixed signals on consumer spending and business investment, it was too early to judge with confidence how large and persistent the slowdown in growth would prove. Moreover, with domestic inflationary pressures, particularly wages and unit labour costs, still subdued, it was appropriate to leave the policy stance unchanged at that time.”