Monday, 5 October 2015

Interest rates

Most economists have until now maintained that the economy isn't able to cope with higher rates, which could reduce demand and stifle the UK's fragile recovery. Companies might struggle and this would have a knock-on effect on jobs. In terms of personal finance, a rates increase would be bad news for many mortgage borrowers who would feel the pinch.

Then there are the 'hawks' calling for a rise, who cite falling unemployment as a sign that inflationary pressure might be building up in the background. In any case, they add, the markets are being distorted by rates being too low for too long, and this reduces incentives to save and forces people and businesses to take on more risk in the hunt for returns.

Commentators have been watching out for statistical signs that would either bolster confidence that a rates rise was on the cards or definitively kick the issue into the long grass.

The Financial Times notes that figures from the Office for National Statistics have revealed that productivity rose at the fastest rate for four years in the second quarter and passed its pre-recession peak. The figures also show a rise in labour costs of 2.2 per cent. This is far higher than expected and above the Bank of England's inflation target, an early sign that maybe, finally, inflationary pressure is beginning to build.

On the other hand, industry figures show that the manufacturing sector is seeing waning expansion and actually recorded a net fall in jobs last month for the first time in more than two years, according to the BBC.

Savers have had a tough time since 2008 and it does not look as though there will be a change this year, if the government wants to encourage saving it should consider it’s position.

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