December saw inflation rates in the UK bound by an entire percentage point, up from 1.9% in November to 2.9% in December. At the end of the month of December the UK government reverted the VAT rate from the short-term reduced level of 15% back to the preceding 17.5% rate. A small rise in expenditure on the face of it, but over all, taking all VAT chargeable items into account, that jump together with the claims that a lot of major retailers silently increased prices by more than the formal increase in VAT means that it is almost definite that prices have gone up more still in January.
So what level will that leave the January inflation figures showing? No doubt, no less than 3.0%, maybe well above 3.0%.
Does this mean that UK inflation figures are racing away out of control and what does it suggest for the regular citizen? Well, loads of huge lending banks are having to put up their standard variable rate mortgage rates. Why is this the situation if interest rates are stable and their lowest on record? The answer is reasonably easy. The banks must appeal to lots of new savers and in a large number of cases they can only appeal to them by offering decent savings interest rates. Savers discreetly investing in accounts paying 0.5% are losing a small fortune when the inflation figure is charging towards the 3.0% mark. In actual terms, they are really losing 2.5% of their hard generated investment by keeping their cash locked away in the bank.
Hence, these watchful savers are having to look around vigilantly and with promising government backed savings and newly rescued banks being able to afford to pay out higher interest rates, other banks must raise the cash to follow suit. And there is only one obvious way of doing this - raising the basic interest rates that they are charging their borrowers who have been the beneficiaries of unprecedented low rates for a long time.
This hasty and sudden rise in the standard variable rates along with the pound's unhurriedly rising recovery on the critical international money markets might just be the prompt that the controlling Bank of England's monetary policy committee might see as the basis to start to raise the base rate gradually after months of stagnation. They might want to manage spending whilst having to defend the wealth of savers from losing out on their precious investments. Their only device for controlling this would be to increase the base rate little by little.
Some observers think that the projected base rate increase must come at some point in the future and that if it is sooner rather than later, it could diminish the ultimate hurt of the interest rises. They fear that if the interest rates are not raised in the near future, then they may have to raise a lot more in later months. Only time will tell.
Author Resource:
Keith writes for CompareMortgageRates.co.uk where you can read loads of articles about how to compare best rates .
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