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When Will Interest Rates Rise?

Written By On 01/02/2014

In recent months the main talking points are the UK economic recovery and interest rates, both of which are influenced by the same factor, the unemployment figure.

It was widely publicised that Bank of England Governor Mark Carney wanted to create a 'forward guidance' policy last August, hoping to instil confidence into British businesses and individuals alike. He said he wanted to give

as much clarity and as much certainty about the path of monetary policy.

He announced that the Bank would re-visit interest rates when unemployment hit 7 per cent, which he forecast would probably not happen before the middle of 2015. Now here we are barely six months after, with the jobless rate standing at only 7.1 per cent and it's only the start of 2014.

Therefore understandably, there is an uneasiness forming around the nation as people become nervous about loans and mortgages they have or are about to embark upon.

The governor has now shifted his stance considerably to help reassure the British people by suggesting that the 0.5 per cent rate will not be triggered by the 7 per cent unemployment target because the economy has changed significantly.

Many economic experts still believe that we will not see a rate hike until at least next year because inflation has now hit the Bank's target of 2 per cent. They are convinced that this will take the pressure off them in having to increase interest rates.

However, this does not mean that you should not plan ahead. As the head of communications at AWD Chase de Vere Patrick Connolly advises:

While the Bank has said falling unemployment alone won't necessitate a rise in interest rates, it is likely to bring it a step closer. At some point interest rates are going to rise, so households need to be prepared.