No news, good news?
The Bank of England has today released its August 2014 Inflation Report confirming that interest rates will remain at 0.5% with the first increases not expected until 2015.
Whilst unemployment has fallen to 6.5%, well below the 7% target where the Bank of England would consider interest rate increases, wages are not increasing as fast as prices hence the desire for the ongoing status quo.
The Bank has said that whilst the first hike in interest rates is important, what is more important is the average or normal rate over the next three years and beyond. The Bank has suggested that the normal rate may be around 2.5%, which apart from the last five or six years, is historically very low. Are the days of double digit interest rates that some may remember a thing of the past?
Nonetheless, according to research from Moore Stephens, an interest rate increase of just 0.25% equates to extra borrowing costs for UK individuals of £1.9bn whilst an increase to 2.5% equates to a staggering £15.2bn of extra borrowing costs. The position for UK Companies, whilst not as dramatic, is still worrying; a rate increase of 0.25% equates to £525m in extra borrowing costs whilst an increase to 2.5% equates to an extra £4.2bn.
So the message is clear, individuals and companies must act now, plan ahead and ensure they have sufficient resources available to meet inevitable increases in the cost of debt.