More UK households expect interest rate rise

Bank of England policymakers voted 8-1 to maintain benchmark interest rates at 0.5% earlier this month The majority of UK households now expect interest rates to rise within 12 months, an influential survey has said.

In all, 78% of UK households expect the Bank of England to raise interest rates within the next year, according to the Markit Household Finance Index.

And 48% anticipate a rate rise within the next six months, the highest percentage since July 2014.

The survey came out after a Bank of England policymaker forecast that rates would rise “pretty soon”.

Prof David Miles made the prediction as he prepares to leave his role on the Bank’s Monetary Policy Committee (MPC), which takes the decision each month.

Confidence ‘strong’

Prof Miles told the BBC’s Newsnight programme that the time to raise the bank rate from its current historic low of 0.5% was “coming”.

Prof Miles expects the “new normal” for interest rates to be between 2.5 and 3% “I don’t think it’s anything to worry about, it’s a sign of health,” he said.

Prof Miles voted to keep rates on hold this month, in his last vote on the MPC. He has been on the nine-strong committee since June 2009.

He said he was now more optimistic about the UK economy than at any time since he had joined the Bank.

“Within the UK economy, consumer confidence is strong, corporate confidence is pretty strong and the financial system is operating near normal now,” he added.

But he said he expected the “new normal” for interest rates to be between 2.5% and 3%, “materially lower” than historically.

His comments come just days after fellow MPC member Prof Kristin Forbes warned that waiting too long to raise interest rates risked undermining the UK’s recovery.

“Linger too long in the sun and your skin may take on a slightly pink glow”, Prof Forbes warned earlier this week Earlier this month, MPC members voted 8-1 to keep rates on hold – the first time for months the decision has not been unanimous – and this, together with the comments from Prof Miles and Prof Forbes, suggests that the balance is shifting.

Bank of England governor Mark Carney has said that when rates start to rise, they will do so only gradually.

At a news conference last month he said the timing for a Bank rate increase was “drawing closer”, but cannot “be predicted in advance”. The decision would be determined by looking at economic data, he added, including wage growth, productivity and import figures.

Several economists interpreted Mr Carney’s comments, and information in the Bank’s recent Inflation Report, as a signal that any rate rise was likely to be put back from the end of this year until early 2016.

Fundamental improvement

The Markit Household Finance Index also found that UK households saw their sharpest deterioration in finances so far this year in August.

They are slightly downbeat about their financial prospects for the next year, even as the country’s economic picture improves.

“Improving economic fundamentals and gradually rising income from employment should continue to support household finances through the remainder of this year,” said Tim Moore, senior economist at Markit.

“But the ongoing strains reported in August highlight an underlying fragility around the edges of the recovery,” he added.

Source: www.bbc.co.uk