The Bank England (BoE) announced they will postpone putting up the base rate of interest, with fears over impacts of the European Union (EU) referendum on 23 June 2016 foremost on the agenda.
Fears of the referendum
In their latest policy statement on 16 June 2016, the Monetary Policy Committee (MPC) of the BoE, the body responsible for setting interest rates and managing stable growth in the UK economy, stated:
“The outcome of the referendum continues to be the largest immediate risk facing UK financial markets, and possibly also global financial markets.”
Their main reasons for concern were:
- Evidence from recent behaviour of the foreign exchange market would indicate the potential for a sharp fall in the value of the pound.
- Households and firms could put off investment and consumption, ultimately causing unemployment to rise.
- Drying up of ‘capital supply’, where lenders will be less likely to lend to both businesses and individuals.
Base rate still at all time low
The base rate of interest has been at historic lows of 0.5% ever since 2009.
Even with the referendum fears in mind, the announcement that rate rises will be deferred was not unexpected. Most pundits believe there will be no rise until 2017 at the earliest.
Could the base rate go lower?
The BoE stated that in the event of a ‘leave’ vote being successful, they may have to consider adjusting interest rates for what they expect would be a low growth, high inflation economy.
This could be interpreted as either continuing ahead with the planned rise, or possibly cutting interest rates further.
Is now a good time to fix a mortgage rate?
If George Osborne is to believed, mortgages could get more expensive in the event of a leave vote. But without a crystal ball it’s impossible to say what will happen after the vote on 23 June.
Precisely when to fix a mortgage rate is always a tough call to make, but generally a good way to make a decision is to base it on your personal circumstances as much as the financial markets.
If you foresee a period of instability in your life coming up, you may appreciate having fixed costs on your mortgage for a few years.
Fixed rates cheaper than variable rates?
But it’s worth noting that right now, the market leading fixed rate deal is cheaper than the market leading discounted variable rate, which is unusual but likely a sign that banks and building societies don’t anticipate a rate rise any time soon.