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Interest rates of late 80s ‘saw my mum lose her home’ | Personal Finance | Finance

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The Bank of England will meet tomorrow to discuss whether Interest Rates should rise and the jury’s out as to whether policymakers will say the UK’s recovery is strong enough to justify an interest rate hike. With most of the country now reopened and things getting back to normal, an interest rate rise looks likely, if not this year, then certainly next. However, it’s been suggested that a small interest rate rise isn’t necessarily such a bad thing for the economy.

Sarah Loates, Director at Loates HR Consultancy, said although her mother lost her home in the 80s because of huge interest rate hikes, she doesn’t think small increases are a huge problem.

Ms Loates explained: “As someone whose mother lost her home due to the stratospheric interest rates of the late 80s (think circa 14 percent), I am sanguine about micro-increases in interest rates.

“In the grand scheme of things these are minuscule adjustments. Yes inflation is skyrocketing but much of that is adjustments from the bust of lockdown to the post lockdown boom as opposed to a sharp jump in consumer prices.

I’m confident inflation will settle back down, and the impact on interest rates long term will be negligible.”

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Meanwhile, in its August Monetary Policy Report, the BoE said the economy is improving but there is still some way to go.

The report said: “Vaccines are helping spending, jobs and incomes recover from the effects of Covid.

“The size of the UK economy is getting close to where it was before the pandemic.

“Unemployment is falling, although the number of people in work is lower than it was before the pandemic.

The report also found that inflation has risen above two percent. It continued: “Inflation (the pace of price rises) has risen above our two percent target.

“Prices rose by 2.5 percent between June last year, when prices were low because of Covid, and June this year.

“Our job is to ensure that inflation returns to our target sustainably. In response to the Covid pandemic, we have been supporting households and businesses through low interest rates and quantitative easing. This keeps the cost of borrowing low.”

But although this keeps the cost of borrowing low, it isn’t good news for savers who are getting very small returns on their investments.

Inflation has been eating its way into peoples’ hard earned cash for 18 months and it’s only recently that better savings rates have been creeping onto the market.

Rachel Springall, Finance Expert at Moneyfacts.co.uk, said: “There has been a notable uplift to market-leading savings rates on offer since last month across various types of accounts and terms, which is positive to see.

“However, inflation is eating its way into savers’ hard-earned cash and with the expectation for it to rise, its eroding power will not be easing any time soon.
“Savers would be wise to not let this deter them from finding a more attractive rate, as deals are improving, and they may miss out on a market-leading rate if they become apathetic.”





Read More: Interest rates of late 80s ‘saw my mum lose her home’ | Personal Finance | Finance

2021-09-22 08:15:18

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