Six years of record-low interest rates: what now?
The Bank of England Base Rate has now been at a record-low 0.5% for six years. Back when the bank cut rates in February 2009, no-one would have forecast that they would be so low for so long. So where do they go now?
Well the Bank of England has made it clear in its latest Inflation Report that it views the current record low inflation rate, and possible deflation, as a short-term situation, or "one-time adjustment" as Governor Mark Carney put it.
It expects inflation, as measured by the Consumer Prices Index, to head back up to the Government target of 2% by the first quarter of 2017. Indeed, reports of rising fuel prices suggest this is already the case and they will start feeding through to the inflation figures in a couple of months.
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And despite 'forward guidance' seemingly becoming a thing of the past after it spectacularly failed to offer anything of the sort, the bank is sticking to its mantra that interest rate rises will be "limited and gradual".
Forecasts
What less clear is when interest rate rises will begin. The Bank of England had a slight majority of forecasters saying the beginning of next year in the Inflation Report.
The latest Treasury compilation of forecasts has inflation just under 1% at the end of this year but interest rate expectations firmly pegged at 0.5% still. The interest rate figure is lower than recent months and shows how low inflation has shifted forecasters' minds.
Looking ahead to the end of 2016, the forecasters agree with the Bank of England that inflation will be at just under 2% while interest rates will be at 1.3%. The latter suggests interest rates will be on the move by early next year.
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What this means for our money
For people looking to take out a mortgage or remortgage, fixed interest rates continue to fall, as borrowing costs are cheap and lenders are keen to attract borrowers before rates do rise.
It's a very good time to get a mortgage deal, particularly if you're planning on fixing your rate for a while. If you're on a variable rate and haven't checked if yours is competitive for a while, why not have a look? Indeed, even if you still have a bit to run on a fixed rate then it could be still cheaper to remortgage and pay a small early repayment charge.
The Bank of England's determination not to increase rates too fast is also good news for people already enjoying a low variable or tracker rate, as this is set to continue for a while yet. To see the latest mortgage rates, visit our mortgage comparison centre. Don't forget many mortgage offers are valid for six months, so you can secure a rate ahead of your current one expiring. And don't forget to take fees and charges into account.
It's not good news for savers, and pensioners in particular, with the combination of low interest rates and inflation around 2% meaning rates on savings and annuities will continue to be poor.
In contrast to mortgage rates, savings rates tend to lag behind Bank of England base rate increases, as institutions drag their heels before passing on the 'benefit'.
The forecasts that rates aren't going to rise swiftly any time soon mean it might be worth considering fixed rate savings options again.
If you haven't used your Cash ISA allowance for this tax year, you should probably look at that as your first port of call. Rates are similar, and in some cases better, than on savings accounts, with the added bonus of returns being tax free. And mid-term fixed ISA rates have improved, although there's no guarantee they'll stick around.
Alternatively, a continued low-interest environment might mean it's time to dip a toe into the stock market.
You can see how inflation affects your own finances by using this calculator.
What do you think will happen to inflation and interest rates next? Where are you putting your money? Share your thoughts in the Comments box below.
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