Are interest rates falling or rising what is going on?

Interest Rates in Flux: Are They Rising or Falling?

Introduction

After several months of steadily falling interest rates, there has been some indication over the past few weeks that rates may be starting to rise again amongst some lenders. This has led to confusion over whether the overall downwards trend is reversing. This article will analyze the current situation and explain what is driving these fluctuations.

Rates Should be Falling Further According to Experts
Despite the recent upward ticks, many experts believe interest rates should continue falling significantly in the coming months. Former Bank of England policy advisor Dr Roger Jubb has stated publicly that rates could drop as low as 2% within months. His rationale is that high inflation currently is driven by external cost factors like the Ukraine war and rising commodity prices, not by high consumer demand. As inflationary pressures ease, the Bank of England should cut interest rates to relieve pressure on struggling UK businesses rather than throttling the economy.

Impact on Businesses if Rates Stay High

Prolonged high interest rates are putting huge strain on British companies, with an estimated 500,000 small businesses at risk of failure if the status quo continues. Bringing rates down would help resuscitate the economy. GDP figures show the UK has been in recession for one quarter, but on a per capita basis, the recession has already lasted seven quarters. Failing to act promptly risks significant damage.

Lenders Showing Signs of Desperation

The recent upwards rate changes by some lenders look to be an act of desperation to lock in higher returns for as long as possible before the expected coming drop. There was a spike in housing market demand in January as buyer confidence returned briefly. By raising rates, lenders hope to tempt buyers into fixing at higher levels before the falls kick in. This includes tying buyers into extra fees and overpriced products. But buyers should be wary of panicking into these offers.

Market Fundamentals Suggest Further Falls

The market fundamentals suggest interest rates will need to fall much further in 2023 to stabilize the worsening economy. Fourteen consecutive base rate hikes by the Bank of England have already pushed the economy into recession. And the forces that drove rates up initially – like the Ukraine war – have not gone away and could flare up to drive further cost-push inflation. But lower consumer demand will begin deflating prices on non-essentials. And eventually, the Bank will have to act to prevent a deeper recession, even if it delays until close to the next election. The scale of reductions needed after such dramatic hikes may need to be drastic – potentially as low as 2%.

Conclusion

In conclusion, interest rate fluctuations and rises over the past month seem to be more of a desperation move by lenders than the start of a fundamental upwards rate cycle. Market factors that previously pushed rates up have not gone away and could drive further cost-led inflation. But the indicators point towards a necessary downwards correction in 2023 to try to restart the stalled economy and save struggling businesses. So buyers should avoid panicking into expensive fixed rate deals in anticipation of rises and be patient for potentially significant falls ahead. The next few months will prove pivotal in determining just how low rates will have to go to turn around the deteriorating economic situation.

Summary

– Interest rates fell steadily for months but have ticked up slightly in the past few weeks, causing confusion if the downwards trend is reversing

– Experts like former BoE advisor believe rates should fall further to 2% within months to revive struggling UK economy

– 500,000 UK small businesses at risk of failure if high interest rates continue throttling economy

– Recent lender rate rises seem a desperate attempt to lock borrowers into higher fixed rates before expected falls

– Fundamentals suggest rates need to fall to pull economy out of recession made worse by 14 consecutive hikes

– Ukraine war and inflation drivers haven’t gone away, could spur further cost-push inflation

– Consumer demand falling though, will bring down non-essential inflation over time

– BoE will likely have to step in with major rate cuts before 2024 election to resuscitate economy

– Buyers shouldn’t panic and lock into expensive fixed rate deals in anticipation of rises

– Next few months pivotal in determining how low rates will have to go to stabilise declining growth