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Disappointing inflation figures set the scene for interest hike

Thursday, May 19th, 2011

After last month’s pleasantly surprising drop in the UK Consumer Price Index (CPI) to 4%, homeowners were once more given cause for concern about a rise in interest rates when the figures for April showed an increase of 0.05% to 4.5%. The figure was just as surprising as the March ones really but altogether more unpleasant.

Worrying times

The prospect of a hike in interest rates has once more been raised and consumers already paying over the odds for fuel, home insurance products and energy will be more than a little concerned.

Economists rewriting their scripts

The drop in last month’s figures coupled with the gloomy recovery predictions from Mervyn King, the Governor of the Bank of England (BoE) had led pundits to believe that the record low Base Rate of interest would remain the same for the rest of this year. They are now revising their forecasts once again with economists appearing in front of TV screens seemingly every day, voicing their opinions.

Been wrong before

November is now reckoned to be the time when interest rates will start to go up but city forecasters have been wrong before and just for an example of how wrong they can be the long term forecast for interest rates in May 2011 by a leading economist in August 2009 was actually 3.5%. That is some way out, and remember in August 2009 we already had rates of 0.05%.

5% the tipping point

Of course if inflation is at 4.5% now, then the predicted increases in energy costs in the autumn may well take them over what many see as the pivotal figure of 5%. Inflation over 5% would really point to the BoE as having lost its grip on the economy and would probably result in an interest rate increase.

Getting house in order now may pay dividends

How many homeowners will try and organise their finances around an interest rate hike is anyone’s guess, but the time may be right for consumers to get a new home insurance quotation if their policy is due for renewal and the same could apply in regard to their energy and home loan providers. Making sure one can manage the essential bills over a period of a few years can take a great deal of stress from the financial management of any household.

Tags: Home Insurance, Homeowners, Interest rates, Saving Money, UK Consumer Price Index
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Savers get the chance to find a new home for their money

Tuesday, May 17th, 2011

Homeowners looking to find an inflation proof home for their savings now have the chance to find such a place, courtesy of the Government financed National Savings and Investments (NS&I) department.

Tax exemption will allow savers to redress the balance

Savers who have seen their nest eggs slowly nibbled away by rising prices in the shops, at the forecourts, and even in their homes via increased charges for products such as energy and home insurance can now invest £15,000 into a five year savings bond that will guarantee them interest based on the Retail Prices Index (currently hovering at 5.3%) plus an average of 0.5% over the full term and the best thing of all is that the interest is tax exempt.

New bond the first for almost a year

The new bond issue from the NS&I comes after a 10 month period in which it stopped offering inflation proof bonds to new customers due to what it described as excessive demand. The March budget did make way for the NS&I to increase its bond selling by £2 billion and that is exactly what it is now doing. The bonds can be cashed in before the term if inflation falls, although everyone must hold on to them for at least a year. With interest levels ranging from RPI+ 0.25% after year 1 to RPI+ 0.86% after year 5 the Government department best known for its sale of Premium Bonds is expecting to be inundated with customers in the coming weeks.

Sweet revenge for those who were let down

Savers, particularly those who feel they have been let down by banks and building societies in respect of loan repayment rates when they looked to take out affordable home insurance on affordable homes, will no doubt take great pleasure in transferring their money from the High Street mortgage providers and into the Government coffers. The banks and building societies are not all happy about a Government Department muscling in on their domain and are now complaining about unfair competition. One gets the feeling the complaints may well fall on deaf ears.

Don’t delay

The new bonds will be especially attractive to top rate or even middle rate tax payers due to the tax exemption and prospective buyers will have to be quick off the mark.

Tags: Interest rates, money home insurance, savers, tax exemption
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Interest rate committee set to meet again

Tuesday, May 3rd, 2011

Homeowners across the UK will once more be nervously awaiting news from the Bank of England’s (BoE) Finance Committee as they meet later this week to discuss interest rate levels.

Inflated prices hitting the consumer

With food prices in the supermarkets steadily rising, fuel prices rocketing and the cost of home insurance and car insurance spiralling upwards, the last thing anyone with a mortgage wants just now is an interest rate rise. It does seem that the latest news from fiscal experts should keep the rate at 0.5% for this month at least.

Expert forecasting dramatic cut in income

The top economic adviser for influential city finance firm Deloittes, Roger Bootle, is predicting that 2011 will prove to the most restrictive year on respective incomes for over 100 years. He predicts that inflation will rise to over 5% and that tax increases and job cuts will effectively mean that each household in the UK will experience a fall of around 2% in income. He says that on average every family in the country will be around £800 worse off.

Rate rise could damage economy

According to Bootle, wages will fall, house prices will fall and unsurprisingly so will consumer confidence. He predicts unemployment, household costs such as home contents insurance, food and fuel will continue to rise throughout the year leaving us all out of pocket. He believes that some in the City have been too optimistic about the economic recovery and that the poor growth figures suggest we are not out of the woods yet. He also believes a rise in interest rates would risk even more damage to the fragility of the economy. It is no secret that Bootle also has allies within the Government, Chancellor George Osborne and Business Secretary and Vince Cable are known not to favour any interest rate increase just yet.

The hawks may retract their claws

His words come as the BoE committee get ready to discuss the bank’s policy on interest rates. The last few months has seen three members of the committee, Andrew Sentence, Martin Weale, and Spencer Dale all call for a hike in rates to fend off the danger of high inflation, however, the surprising drop in the consumer price index last month coupled with the warning shots across their bows by Bootle, may even convince them that the homeowners can ill afford yet another rising bill.

Tags: cheap home insurance, Home Insurance, Interest rates
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