In light of the bleak outlook for inflation, the City’s biggest investment banks have raised their expectations for an interest rate hike this week. This is likely to lead to an increase in the cost of money which will see consumer APR’s increasing over the coming months.
They forecast a 0.15 percent rise, or 15 basis points in City speak, arguing that the Bank is likely to lower its growth forecasts for the UK economy and warn that labour shortages and the supply-chain crisis will drive up prices.
Inflation appears to have worsened recently (see below), prompting Bank governor Andrew Bailey and economist Huw Pill to discuss their collaboration publicly.
The Pandemic Effects
We have seen some auto finance lenders already start to implement an increase with the commercial funders (who typically operate in the mortgage sector too) enhance from the 1st November with 0.45% increase immediately and talk of future hikes too.
“We now expect the MPC to deliver its first post-pandemic rate hike — 15 basis points,” Deutsche said in a note to clients.
Some banks, such as Nomura, believe the Bank will hold off on raising rates until December, but Nomura along with the majority of other finance institutions predicts that borrowing costs will continue to rise next year, reaching 1% by the end of 2022.
“We at the Bank of England have signaled… that we will have to act,” Bailey has said.
Watch this space, but also be prepared as it is likely lenders and brokers will be discussing these changes imminently…
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