Readers Question: What Happens when Inflation is Higher than Interest Rates? A negative real interest rate means that inflation is higher than interest rates. Therefore, savers will see a fall in the real value of their savings. For example in 2011, CPI inflation was 5%. Bank of England Base interest rates are 0.5% In theory, …
When interest rates were cut to 0.5% in March 2009, few would have predicted that interest rates would have stayed low in UK, US and the Eurozone for so long. Interest rates have stayed at zero for several years – defying several predictions that they will rise soon. Who benefits from low-interest rates and who …
The real interest rate is the nominal interest rate – inflation rate. For example, if the Bank of England set base rates of 5.5% and the CPI inflation rate is 3.4%. Then the real interest rates is said to be 2.1% A higher real interest rate is good for savers and bad for borrowers. Note, …
Is there any relationship between the base interest rate and the savings ratio? In theory, the interest rate can affect the decision to save in two ways. Substitution effect of change in interest rate – lower interest rates reduce the incentive to save because of relatively poorer returns – lower interest payments. When interest rates …
Readers Question: Will interest rates rise? Some say yes, my investment analyst/advisor says no (“because the UK is largely living on credit and the government and bank of England do not want a repeat of 2008”) Interest rates will rise when the Bank of England feel the economy has returned to a normal trend of …
In the Bank of England’s latest forecast for the UK, they predict reasonably good economic growth in term of real GDP. At the same time, forecasts for average real incomes are more pessimistic. The Bank of England suggests UK economic growth will be maintained by consumer spending – spending which will partly be funded by …
Interest rates are the cost of borrowing money. Interest rates are normally expressed as a % of the total borrowed, e.g. for a 30-year mortgage, a bank may charge 5% interest per year. Interest rates also show the return received on saving money in the bank or from an asset like a government bond. Different …
After keeping interest rates at close to zero for several years, the US Federal Reserve has moved to finally increase interest rates. This increase in interest rates is more significant than usual because it marks an end to the unique circumstance of ultra-low interest rates. The Federal Reserve has also indicated they expect to raise …