Interest Rate Rise By December Economists Expect

Interest Rate Rise By December Economists Expect

As prices, wages and inflation soars, the market is pricing a rise in interest rates before Christmas.

The Times reports that economists at Bank of America expect a modest 0.15 percentage point rise in December taking base rates up to .25%.

Base lending rates have not increased since 2018 and in March 2020 during the pandemic the Bank of England slashed rates to an historical low of 0.1%.

Central banks are between a rock and a hard place where they will be forced to raise rates to curb inflation but will pay billions more on their own borrowing. A rise of just 1% will cost the UK an additional £10 billion a year. The cost will be billions more for the US.

Homeowners and buy-to-let investors will be protected whilst they hold a fixed rate mortgage but will suffer higher repayments when the rate expires. In the UK, most mortgages are fixed for two to five years. Mortgage rates actually went up when base rates were reduced, but lenders have recently entered into a mini-price war on buy-to-let deals.

Cheap borrowing has been blamed for increasing house prices despite the country experiencing the worst economic downturn on record!

1.1 million job vacancies

Job vacancies in the UK have reached a 20-year high, which will slow economic recovery.

The ONS reports that the number of employees on payrolls showed another monthly increase, rising 207,000 to a record 29.2 million in September.

The Institute for Employment Studies (IES) said labour shortages were “affecting the whole economy, and where likely between a quarter and a third is explained by lower migration”.

Tony Wilson, director of the IES, told the BBC there were now fewer unemployed people per vacancy than at any time in at least 40 years. This is down to fewer older people in work and more young people in education he said.

The number of vacancies hit another record high of 1.1 million and average weekly earnings, including bonuses, are 7.2% higher than this time last year. Wage rises, which have reach 15-20% in some sectors, are normally followed by higher inflation and consumer prices for all.

Business leaders want to be allowed to import the workers they need to fill labour shortages. However, the government wants an end to low-skilled and low-wage immigration.

The energy crisis is threatening to shut down manufacturing production in the UK within days unless the government takes urgent action. Businesses want the government to protect them from huge increases in energy costs as well as reducing or removing ‘green tariffs’, which puts them at a disadvantage compared to countries like China.

The UK is sitting on a gold mine of natural shale gas that the government will not exploit due to environmental concerns. The US takes advantage of its shale gas which is why prices are one sixth of UK gas.

While China powers industry with coal fired stations, the UK refuses to reopen new coal mines in order to meet environmental targets which Asian competitors ignore.

China’s debt and real estate bubble has not gone away, with Evergrande and two other Chinese property companies defaulting on foreign owned bond interest payments.

Stock Markets could fall 10%, the Bank Of England has warned

Financial markets and stocks and shares could see a “sharp downturn” with lower expectation of an early economic recovery from the lockdown the Bank of England predicted this week.

How can you protect yourself and profit from a stock market or property crash?

Even if you do not directly invest in the stock market or property your pension fund manager may be doing so on your behalf. Check with your administrator or financial adviser.

The answer is to learn about investing and become more financially aware.

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