November marked the first rise in the Bank of England Base Rate in over ten years.
At the start of November, the Bank of England raised its base rate for the first time since 5 July 2007. Just over a decade ago, the previous interest rate increase was 0.25% – from 5.5% to 5.75% – this time around the increase was the same, but represented a doubling in the base rate!
The move was widely anticipated after several senior Bank officials had dropped heavy hints that an increase was likely before the end of the year and in the run up to the announcement, the markets assumed a 0.5% rate as a ‘done deal’ and focused on whether the rate increase would be ‘one and done’ or perhaps the start of a series of rate rises.
The answer to that question was provided by the Bank’s Governor himself, with Mark Carney noting that money markets were forecasting two more rate rises over the next three years – a “gently rising path” consistent with inflation reaching the Bank’s target by the end of that period.
In other words, the Bank currently expects base rate to reach the dizzy heights of 1% around early 2020.
If anything, the news released less than a fortnight after the rate rise was announced that instead of rising above 3% ( as was widely expected) , CPI inflation actually remained unchanged, has pushed out the date of the next increase.
The combination of 3% inflation and a 0.5% base interest rate is not good news if you hold cash on deposit: the gap between the two (plus any tax) is a measure of how fast buying power is being eroded.
Please Note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.