Coming! Ready or not! Base rate rise in 2014?

It was great to speak to Danny Pike on BBC Surrey and BBC Sussex last week about the Governor of the Bank of England, Mark Carney's, speech at Mansion House in London on the significant possibility that the Base Rate will rise from its current historic level of 0.5% pa. You can hear this radio slot here:

The issue is not that rates will rise, but that we may not see the old 'norm' of 5.00% pa -the Monetary Policy Committee believe 2.5% to 3.00% pa in around 2/3 years’ time is more likely. There is no guarantee where they will settle in the future and at what rate. The only certainty is the uncertainty, but the trend is certainly pointing up. The strength of Sterling as a currency jumped in the aftermath of the speech. I think rates will now rise this year.

It was also good to discuss the positive economic data available which has moved faster than anticipated to put pressure on the Bank of England to delve into its tool box of instruments to keep the UK economy from overheating.

Data recently available provides the following examples:

• Unemployment falling to 6.6% (2.16M, Source: BBC 11 June 2014)
• House price indices rising quickly
• Positive and upgraded GDP figures (Gross Domestic Product/ effectively what we produce as a nation in a period)
• Sterling strong
• Manufacturing increasing well
• Stock markets at near highs
• Inflation falling

These are only examples and individually may not have significant impact. However, as a group together, they have all moved positively and at a pace unexpected by some. Obviously, past performance is not an indication that these will continue or improve further.

The impact of this possible change is likely to be felt by individuals and businesses alike. For companies, they might find their product costs for export increase, along with any borrowing costs they may have.

For individuals, the impact will have different effects on borrowers and savers.

For borrowers, the cost of their finance is likely to increase if not on a fixed rate arrangement. They should prepare and interrogate their household budget, adjusting costs now to tuck away a buffer against these increased costs where possible.

For savers, their deposit rate 'drought ' may be coming to an end. This may be dependent on banks and building societies passing these future rate rises on to customers, although I am sure they will not hesitate for borrowers. As I noted in my radio interview, the currently attractive Pensioner Bond offering at the beginning of 2015 looks good now. This view may change in time as rates rise steadily.

The message from this blog is be ready, however you could be affected. Reviewing your financial planning now, over the summer of 2014, could well be a wise use of time to prepare for the changes ahead.

The Chapters teams in Guildford and Woking are well placed to advise you on savings and financial planning for your finances. No individual advice is provided during the course of this Blog. If you would like to receive further information regarding your own individual situation and circumstances, please contact the Chapters team in either Guildford or Woking.

Keith Churchouse, FPFS
Chartered Financial Planner
ISO22222 Certified Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899.

The Queens Jubilees/ An economic comparison

First of all, may I wish Her Majesty the Queen many congratulations on her Diamond Jubilee of her ascension to the throne in 1952. I am one of many who admire her courage and energy in fulfilling her many duties and we are honoured to have her as our Queen.

The preparations for the Diamond Jubilee across the UK are gaining pace with Bunting, flags and homemade crown posters appearing in many villages and street corners. It certainly brightens many communities at a time of austerity and with many families, companies and individuals working hard to make ends meet.

It makes me feel rather nostalgic, as I reminisce about what for me was the last big Jubilee of 1977. To age me, I was 10 at the time and the prospect of a street party was very exciting indeed. With Union Jack hat made, I remember (in true British style) that it poured with rain that afternoon and we moved the party indoors. It did not dampen any spirits and much merriment was had by all. The children filled to the brim with tartrazine (a now well-known orange squash colour additive of the time), they played for hours. All great fun!

Obviously, at the age of 10, it was not my time to understand the detail of what was happening to the economy at that time and have referred back to the history books to investigate this further. We all know that the past is not a guide to the future, however, it nevertheless offers some interesting insight into the time then, and possibly a few comparable’s with what is happening now.

From an economic point of view, the 70's were in general a difficult economic period. With the price of oil reaching (at the time) a peak in 1973, Industrial disruptions and high unemployment to name but a few issues, the background to Her Majesty's Silver Jubilee was not that pretty. Sound familiar? As other points of reference, Labour was in power (with James Callaghan), Jimmy Carter became the 39th President of the United States of America in January, Punks and the Sex Pistols were rebelling at every opportunity and we endured the 'long hot summer of '76' the year before. We had only been in the European Economic Community (as it was known then/Now European Union) at that time in 1973 (Joining in 1973 with the agreement signed by Edward Heath).

But what was happening in the economy in June 1977? I have detailed some of the economic headlines/indices below:

• (RPI) Inflation Rate: 17.7%
• Bank Base Rate (04th May 1977): 8.50%
• UK Unemployment Level: 5.6%
• Dow Jones Index (01 June): Open 898.66,
• Litre of Petrol: 18p a litre (as was Diesel!)
• Gold Price 08/06/1977 per ounce: $142.30
• Average House Price 1977: £13,600
• Price of a Pint of Lager Beer (Probably from a Party 7 tin if you remember those!): 20p
• Price of a loaf of bread: 9p

Sources: Wikipedia, Yahoo, Guardian, AOL, Others

I am sure that these facts and figures will make interesting reading. It is ironic that the gathering of this information was achieved via the internet at the touch of some buttons. You could not have done that in 1977!

And what of the future? Many pundits have suggested that we live in unchartered waters, and I am sure that this will prove (in many quarters) to be true. What we can be certain of is that change will occur, both in personal circumstances/life phases and the economic environment which we live, work and retire in. Seeking independent financial advice on (and reviewing) your financial planning on a regular basis is important in ensuring that you get the best from your finances as times change.

I hope you enjoy the long weekend of the Diamond Jubilee and if you are looking at your financial situation over the summer, then come and speak to Chapters Financial Limited and see how we can help you with your future planning.

Past performance is not a guide to future performance and no individual financial advice has been provided in the content of this blog.

Keith G Churchouse, Chartered Financial Planner
Director, Chapters Financial Limited

Chapters Financial Limited is Authorised and Regulated by the Financial Services Authority. Number 402899