UK Economy Report

The Financial Times reports that 7-2 vote in favour of a quarter-point point base rate rise. Following the MPC’s announcement, markets reacted coolly; sterling fell 1.4 per cent against the dollar as traders concluded that the cost of borrowing would rise more slowly than expected.  The MPC now expects the UK economy to grow at 1.7 per cent per annum over three years.

The Financial Times also suggests that it will be some time before the effects of the rise are felt by borrowers, as most are on fixed-rate deals. The Bank of England estimates that the average cost to mortgage holders, when commercial rates do reflect the increase, will be £15 per month.  It’s expected to be felt more quickly by savers, with KPMG economist Yael Selfin quoted as saying that ‘long-suffering savers will rejoice’.

Family spending cuts could hit property transactions:


The Times predicts that 400,000 households will be forced to cut spending to balance their books following the rise.  The BoE estimates that 1.5 per cent of households have mortgages that cost more than 40 per cent of their monthly pre-tax income, and that for every £20 of extra interest payments, borrowers cut spending by £10. The article speculates that this may create a slowdown in the property market as families shy away from major commitments.


Britain will suffer without a Brexit deal says Carney:


The Times reports that the BoE has sent another strong signal that a Brexit deal is of paramount importance to economic stability, and that the decision to leave the EU has affected investment and labour supply. Inflation is expected to peak at 3.2 per cent for October. Speaking at the launch of the Bank’s inflation report, Mark Carney said that most businesses are working on the assumption that there will be a transition   arrangement, and that the level of progress on reaching a deal will have a major effect on confidence in the weeks ahead.


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