The time is not right for an interest rate rise – but be on alert

Despite the 5-3 vote from the Monetary Policy Committee (MPC) last week, Bank of England Governor Mark Carney has said the time is not right for an interest rate rise.

In his Mansion House speech yesterday (20 June 2017), Mr Carney said: "From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment [rate rises].

"In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations."

So, although inflationary pressure is on, perhaps it is not from the angle of most concern. Raising interest rates during a period of such uncertainty is not favourable as it may impact upon consumption and investment and start the next deflationary cycle.

Monitoring fixed rate cost of funds

At Rural and Business Specialists Ltd, we monitor fixed rate cost of funds closely across the banks. These have moved slightly down since the announcement from the MPC last week. This would either indicate that the banks have been slow to respond or that there is no concern here yet. We think it is more likely to be the latter.

Our sources at World First said that before the Governor spoke yesterday, the probability of an interest rate rise by the end of next year was 75%. As of this morning it has dipped to 48%.

We will give an update on market trends from time to time and trust these updates help you to decide if you should fix or not. It's important to speak about your options with your lender.