When will interest rates peak and what does this mean for borrowers
What a start to February with the Board of Governors of the Federal Reserve (FED) voting unanimously to raise the interest rate paid on reserve balances to 4.65% by half a percentage point, the Bank of England’s Monetary Policy Committee with a 7-2 majority increasing Bank Base Rate by the same percentage point to 4.0% and the European Central Reserve Bank (ECB) following suite and raisings it’s Policy Rate to 2.5%.
When will interest rates peak and what does this mean for borrowers.
With the Bank of England having raised rates from 0.1% in November 2021 to 4.00% in February 2023, an increase of 3.9% in 16 months, where is the Base Rate likely to end up. In the latest forecast it’s predicted that the Base Rate will continue to rise to around 4.5% by the middle of the year and fall back to just over 3.25% in three years’ time. By all account the days of super low interest rates appears over, certainly for the foreseeable future.
On a positive, these measures should help to control inflation and bring it back under control to the Government target of 2%. If inflation is too high or it moves around a lot, it’s hard for businesses to set the right prices and for people to plan their spending and similarly if inflation is too low, or negative, then some people may put off spending because they expect prices to fall. Although lower prices sounds like a good thing, if everybody reduced their spending then companies could fail and people might lose their jobs which is food for thought.
It will be interesting to see how lenders will react to the latest change and predictions, I don’t think that at this stage there is a clear enough picture on how this will impact on the interest rate that you and I pay on our borrowings.