Earlier this month news broke that Mr. Sajid Javid officially resigned as chancellor due to a conflict of interest with Prime Minister Boris Johnson, who called for a cabinet reshuffle. Mr. Rishi Sanuk was appointed as Sajid Javid’s replacement and was officially named Chancellor of the Exchequer in February. Although Chancellor Sanuk is set to keep the March budget the same, his appointment is expected to cause interest rates, and potentially the inflation rate, to rise.
Read our blog to learn what higher interest rates could mean for you and book a meeting with Headway Wealth to speak with an advisor. Rising interest rates could affect your pension, savings and mortgage payments, so see how you can prepare for what’s to come under the new Chancellor with a qualified financial advisor today.*
Financial Impact of Chancellor Sanuk’s Appointment**
When Mr. Rishi Sanuk’s appointment was announced, the pound rose to its highest rate vs the Euro in three months (now valued at $1.30). Before the announcement was made, the UK economy was trying to withstand a stagnated fourth quarter after suffering a disappointing third quarter in 2019. Sadly, the UK economy was only greeted by an inflation rate on the rise due to increased gas, electricity and petrol prices at the start of 2020. Prior to January, the inflation rate hadn’t risen in six months.
Britons are now beginning to worry that interest rates, government spending and the inflation rate will all rise under the new Chancellor. The overarching fear is that Chancellor Sanuk and the Prime Minister will increase government spending and therefore increase the inflation rate causing the Bank of England to increase interest rates as a result. In fact, investors have already hedged their bets by selling off their UK gilts, which has caused the price of UK 10-year bonds to increase from 0.61% to 0.65%.
Predicted Economic Growth**
Despite fears of rising interest rates, government spending and inflation rate, the Bank of England’s Monetary Policy Committee (MPC) says that it’s focused on promoting economic growth across the country. The MPC determines interest rates and has stated that it intends to keep the interest rate at 0.75% so the inflation rate stays at 1.3%. The Bank of England strives to keep the inflation rate under 2% and anticipates that the UK economy will reach that target within three years time. This means that central banks are not currently planning to raise interest rates at this moment in time.
What we can see is a clear increase in consumer confidence, especially in the housing market. Termed the “Brexit Bounce” by newspapers and journalists, the UK economy is slowly beginning to recover and gain momentum after Brexit. UK house prices have risen by 2.2% and the price of consumer goods increased by 1.8% in January despite being forecasted to only increase by 1.6%. If that isn’t telling enough, the Bank of England is even predicting a 0.2% increase in Gross Domestic Product (GDP) growth in the first quarter of 2020.
If you aren’t sure how a rise in interest rates could affect you and your savings, contact Headway Wealth.* We can bring your finances to life and help you prepare for a variety of personal and financial outcomes. Visit our Live Chat to get the conversation started today.
*Headway Wealth Limited is authorised and regulated by the Financial Conduct Authority
**The value of investments can go down as well as up.
