Stand by for rising interest rates. I’d say It is about even odds as to whether the Bank of England starts to push up rates at its Monetary Policy Committee (MPC) meeting this week. If it does not move then, expect it to do so by February at the latest.
The first move, the markets expect, will be from 0.1 per cent to 0.25 per cent, so still very low. But the big question is not when rates rise but how high they have to go over the next three or four years. If inflation through this winter hits 5 per cent as measured by the consumer price index, and perhaps 6 per cent on the retail price index, the idea of interest rates being less than 1 per cent is ridiculous.
It is a huge incentive to borrow. Just last week Santander, the Spanish bank that bought up a string of building societies, including Abbey National, Bradford and Bingley and Alliance and Leicester, reported that it was dealing with the strongest demand for mortgages that it had seen for “many, many years”. Its chief executive, Nathan Bostock, said that demand was “phenomenally strong”, with homebuyers particularly wanting to have five-year fixed-rate deals.
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