As homeowners across the UK try and digest what the latest budget offering from George Osborne will do to their domestic economy situation, one man who could have an even greater effect on their finances has better news to offer.
Stable base rate
As homeowners nervously calculate their monthly outgoings, from home insurance to home delivered fast food, the one constant they have had over the last two years has been a steady mortgage rate. It has been, for many people the difference between hanging on to their home and applying to join a Council house waiting list. The lowest ever bank rate since its inception in 1694 of 0.05 has kept the lid on the recession, it has been the difference in keeping home repossessions down to much lower figures than they were in other downturns over the last generation.
Inflationary pressures
The rate is now under more pressure than at any time in those two years. Inflation is now racing ahead at over 4% and with the promise of even dearer fuel and energy charges still in the aptly named pipeline, the hawks in the Bank of England Finance Committee are circling and screeching ever more loudly for an increase in the base rate.
Any increase in the base rate would be seized upon by bankers and mortgage providers alike. Within minutes of an increase being announced mortgage rates will be on the way up and no-one can help the poor old homeowner then.
Cometh the hour…
Well perhaps one man can. Adam Posen is a member of the Bank of England Finance Committee and he is far from convinced that a rise in interest rates is necessary. Indeed he sees several reasons why they should stay as they are and fortunately for many he is not shy about making them public. Posen believes that once the effect of fuel and energy prices have worked there way through the system, inflation will fall below the stated target of 2% by next year.
Time will tell
He says that the wait and see approach adopted by the majority of the committee will show that an increase in wages and wage demands which would really put pressure on the inflation pedal will not materialise. He believes the job cuts coming through will weaken Trade Unions enough to quell actions from the shop floor to back up wage demands. If the banker is right then homeowners across the country can breathe just a little easier and still afford to look around for good home insurance offers and perhaps even splash out on the occasional take away meal.
Tags: banks, Base Rate, Home Insurance, property market