Third of UK households would be financially hit if interest rates increased

16th December 2015


Nearly a third of UK households would have to slash spending, work longer or get a better mortgage deal if interest rates increased by just 2% without any rise in pay, according to the Bank of England.

The Times reports that an analysis by the Bank found that the number of vulnerable households still remained high but they “appear a little better placed to cope with a rise in interest rates than a year ago”.

The government’s austerity programme “has weighed on household spending, and it is likely to continue to do so”, the Bank added.

The research comes ahead of an expected increase in US interest rates on Wednesday.

However, speaking to the Financial Times, the Bank’s governor Mark Carney, said that the UK was in a “low for long” rate environment.

The survey found that 31% of 6,000 households claimed they would “need to take action” if rates rose to 2.5%  but pay stayed flat, down from 37% in 2014 and 44% in 2013.

“Reported levels of financial distress are low and have declined a little further,” the Bank said.

“Households reported that they had more income available to meet any increase in mortgage repayments. The survey results do not imply that an increase in rates would have an unusually large effect on household spending.”

Interest rates are presently forecast to increase from 0.5% to 1.5% by the end of 2018.

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