7th August 2015
Households need to be ‘primed and ready’ for an interest rate rise that could tip some finances over the edge.
Governor of the Bank of England Mark Carney has warned the time for a rate rise is ‘drawing closer’ and all indicators are pointing to a rate hike from the historic low of 0.5% as early as next year.
Although the Bank has said the increases will be incremental there are many households who will feel the pinch immediately as they adjust to rising mortgage costs.
Gillian Guy, chief executive of Citizens Advice, expressed concern about families who are not ready for a rise after six years of low rates.
‘Households need to be primed and ready for a rise in interest rate. Many people are just about managing financially which means even a small interest rate rise can tip them over the edge,’ she said.
‘Any rise in interest rates must be slow and steady so people have time to adjust. It is crucial that people have access to free money and debt advice in order to budget for a rate rise. Creditors can help borrowers by explaining the impact a rise will have and help them to prepare, as well as recognising where they can be flexible to help people keep afloat.’
The Monetary Policy Committee, which sets interest rates, voted 8-1 to leave interest rates on hold this month. One member, Ian McCafferty voted to increase the rate by 0.25% to 0.75%.
The market is already pricing in a 0.25% rise next year, with May being the expected date, although some are predicting as early as February.
Carney said: ‘The likely timing of the first Bank rate increase is drawing closer.
‘However, the exact timing of the first move cannot be predicted in advance; it will be the product of economic developments and prospects. In short, it will be data dependent.’