'No base rate hike until 2016' – what it means for you
Tim Scrivener - Rex Features
The Centre for Economics and Business Research (CEBR) has predicted that interest rates will stay at 'rock bottom' levels until 2016.
As you will no doubt recall, rates were slashed to a record low of 0.5% back in 2009 in order to stimulate growth. And with the economy still in the duldrums in 2012, the CEBR believes it will be a further four years before we can expect to see rates rise.
If this prediction proves to be correct, what does it mean for ordinary people?
Mortgage borrowers
Low interest rates are good news for most mortgage borrowers, and that's especially true for people with tracker mortgages.
Trackers are mortgages where the rate you pay is directly linked to the Bank of England's base rate. Let's say your current mortgage is base rate plus 1.48% - that means you're paying 1.98% in interest at the moment. But if the base rate rose to 1%, your 'pay rate' would rise to 2.48%.
And even if you have a variable rate mortgage where the rate you pay isn't directly linked to the base rate, you'd still expect your rate to rise if the base rate went up.
Of course, the rate you pay won't change if you're on a fixed rate mortgage. But when your existing fixed-rate deal expires, you'll get a much better deal if the base rate is at 0.5% rather than 5%.
That said, today's forecast isn't good news for all mortgage borrowers. That's because the CEBR also thinks that economic growth will stay low, while unemployment will rise to three million by summer 2013. If that forecast comes true, some borrowers will lose their jobs and struggle to meet their monthly mortgage repayments.
What's more, some people who keep their jobs will be hit by pay freezes or pay cuts. So mortgage borrowers shouldn't cheer too loudly when they hear about the CEBR forecast.
Pensioners
There's no doubt that most pensioners hate low interest rates. That's because many retirees rely on the interest payments they get from their savings accounts. If rates are low, there's less money for them to live on.
Low interest rates in recent years have been especially painful because they haven't just been low in absolute terms; they've also been low when compared to inflation.
The CEBR is predicting that inflation will fall to 1.7% by the end of the year and will stay at around 2% next year. This is good news for pensioners. If you're only earning 3% interest on your savings, you'd greatly prefer a 2% inflation rate rather than the 5% rate we have at present.
Of course, pensioners aren't the only people who suffer when interest rates on savings accounts are low. Anyone with a chunky sum in a savings account is hurt when the base rate is as low as 0.5%.
People who are due to retire soon
Low interest rates are bad news for many folk who are set to retire soon. Let's say you've built up a pension pot during your working life and you're planning to buy an annuity when you retire.
Annuity rates have been shockingly low over the last couple of years and that state of affairs looks set to continue if the CEBR's forecast is right. That's because annuity rates are driven by long-term interest rates which, in turn, are affected changes in short-term rates and the base rate.
If you're about to retire, it might be worth delaying the purchase of your annuity if that's possible. Or you could buy a fixed-term annuity so that you're not stuck with the same annuity rate for life. Speak to a financial adviser if you think you might want to do that.
Young people
It's tough for recent graduates or school leavers to find jobs at the moment. That's not going to change if unemployment carries on rising into 2013.
Sadly, a late entry into the world of work can affect people for the rest of their lives. Research suggests that people who were unemployed for as little as three months before the age of 23 are more likely to be hit by spells of unemployment later in life. There's also a 'wage scar' that can persist into middle age.
Most of us will suffer
You'll notice that no one is an unreserved winner in any of this. Ok, if you have a variable rate mortgage and keep your job, you won't suffer financially, but if nothing else, the stress of worrying about your job won't be pleasant. And if you're not worrying about your job security, you probably should be!
All in all, the outlook is gloomy....
Firstly I would like to know is it legal or possible that the UK government can give private companies (Banks) public funds. I want some if so. Just 1 million would do.
Now to sort out the mess we are all in together, all government, council and Bank jobs should be capped at £60,000 pa,CAPPING WAS THERE IDEA, and No more, any that don't like it go and earn the money you need to live elsewhere.
Once capped the difference will go to the dept and there after for ever, that would make all these people true and undeniable public servants as the title implies.
When Soldiers sign up to lose there lives they accept much less, we are not asking anyone to put there life on the line only to be paid well for what they do.
Just my simple view on things.
OXFAM AND THE RED CROSS WORK THROUGH BELIEF IN WHAT THEY ARE ABOUT SO WOULD THE UK.
YOU NEWS PEOPLE AND GOVERMENT DON,T GET IT YET DO YOU.
NOBODY CARES, WHY SIMPLY BECAUSE WE HAVE SEEN / HEARED / AND WORKED IT OUT FOR OUR SELVES WHAT ENGLAND HAS SECRETLY BEEN DOING FOR 40 YEARS TO THE PRESENT DAY IN THE EU, BEHIND THE PEOPLES BACK. WE DON,T CARE, WE ARE,NT LISTENING TO THE GOVERMENT ANYMORE, WE SEE YOU FOR WHAT YOU REALLY ARE, NO DIFFERENCE TODAY FROM YEARS AGO, YOU ACTIONED AN OLD TRADITION AND USED IT AGAINST THE PEOPLE.
I REMEBER WHAT TONY BLAIR ONCE SAID IN A TV INTERVIEW. " WELL YOU CAN ALWAYS HAVE IT HARD ", DID HE NEARLY LET SOME THING SLIP ?????????............
I NEVER THOUGHT MY OWN COUNTRY ENGLAND WOULD DO WHT IT HAS DONE TO ITS OWN PEOPLE,IN THE WAY IT HAS DONE IT, NO WONDER OUR OWN ENGLISH PEOPLE ARE SUSPICIOUS OF THE OTHER ENGLISH PERSON, THEY WANT THIS TO HAPPEN TO PLAY ON YORU MORAL, DON,T YOU GET IT YET PEOPLE, HAVE YOU NOT WOKEN UP YET, YOU NEED TO SEE WITH BETTER EYES THAN THAT. WAKE UP PEOPLE
