The Bank of England may have decided yet again to keep interest rates at their current record low of 0.5 per cent during the most recent meeting of its Monetary Policy Committee (MPC), but it is becoming increasingly clear that the days of very low rate fixed mortgage deals are coming to an end. Thirty six banks and building societies increased their rates during July, with many more set to do so over the coming months.
During the last four weeks, average interest rates on a two year fixed rate mortgage with a 40 per cent deposit have increased from 1.81 per cent to 1.86 per cent. A five year fixed rate deal has risen to 2.59 per cent from 2.54 per cent.
The MPC voted 8 to 1 to keep interest rates at 0.5 per cent at the beginning of August but this was the first time that the vote has not been unanimous for months. The Governor of the Bank of England, Mark Carney, has already said that the time for a rate increase is drawing closer.
However, the vote came as a surprise to some economic analysts, who had been predicting two or three MPC members would vote against a rate rise.
The Bank said in its most recent Inflation Report that the outlook for inflation is muted due to the collapsing Chinese stock market and the continuing debate surrounding Greece’s financial woes.
The Bank hopes that inflation will rise to 2 per cent by 2017. Inflation is currently just 0.2 per cent and forecast to rise to 0.4 per cent by the end of September. This is due largely to the low price of oil and the rise in the value of sterling which, the Bank estimates, has increased by 3.5 per cent since May.
