I’m not sure about you, but I would love to be able to predict what is going to happen with the Bank of England base rate. It would help with selecting mortgages and planning cash flow within our property portfolio.
Well although this can not be done with certainty, I was very interested in a recent briefing by one of the Bank’s regional agents.
With the UK’s official inflation rate – the Consumer Prices Index (CPI) – shooting up to a 28-month high of 4.4% it means that we are running more than double the 2% target….and the bank predict this could exceed 5% soon.
So with the bank base rate as a key tool in managing inflation, it would only seem natural that rates would rise in order to force inflation down. Yet the bank continues to vote to keep rates on hold. So Why…..
Well the Bank of England’s rationale seems to be:
- Within the 4.4% inflation, 1% is down to one-off increase in VAT in January
- Another 1% is attributable to energy costs, which are seen as a spike, and other one-off commodity price rises.
Once these one off increases fall out of the equation in a year’s time it is believed the CPI will fall back to the 2% target. Therefore inflation will naturally fall back and doesn’t need intervention.
Unfortunately for us investors the Bank knows that the base rate can not stay at 0.5% forever and is forecasting a slow rise to around 3% sometime in 2014.
This is backed up by the fact that with the governments austerity measures due to hit, there will be considerable pressure on consumers and raising rates quickly will only exacerbate the situation – according to the CML, some 70% of mortgages on are variable rates.
Do you want to know what 2011 has in store? Download the Just Do Property 2011 Property Market Predictions eBook: https://www.justdoproperty.co.uk/ebooks/expert-predictions-2011-property-2-3835