Money News
As expected, the Bank of England's interest rate setting committee has opted to raise base rate from 5.25% to 5.50%. The quarter point increase brings interest rates to their highest level since 2001 and will typically add around £15 a month to a £100,000 home repayment loan.
Although the move was a forgone conclusion, data published earlier in the day only served to reinforce the Bank's decision - not least manufacturing output which showed a 0.6% increase in March. Analysts concluded that firms are becoming more confident about their pricing power - a point that won't have been lost on the BoE, given the potential negative implications for inflation further down the road.
But as CreditExpert.co.uk (the online report and identity fraud protection service) points out in a just published survey, there will be winners as well as losers as a result of the rate hike.
The survey found that 34% thought they would be losers, with their disposable income falling significantly. But an almost equal number (31%) believe that they will be winners, with temptingly high interest rates leading them to save more.
Among the losers, more than half (56%) of British adults with a mortgage fear that the cost of their mortgage will rise substantially, which perhaps explains why 17% of people believe they are going to have to dip into savings or investments to get by.
It would appear that some of those who are already in debt are now seriously worried that with every interest rate rise, their financial burden is becoming heavier.
It is little wonder then, that many people are looking at ways of cutting back - starting with loans. The same number who fear their disposable income will fall say they are going to reduce their spending on credit cards, which means 9.5 million claim they will leave their plastic in their wallets instead of hitting the shops.
Remarkably, 47% are thinking further ahead and say that they are less likely even to apply for credit, with 17% - the equivalent of 5 million people - strongly agreeing that they are not going to apply for a loan. Not only are Britons reporting that they will borrow less, they are also saying that they will spend less. As the economy is heavily dependent on consumer expenditure, this could mean trouble for High Street retailers and entertainment venues.
If people really do begin to rein in their spending, the first sectors of the economy to be hit will be pubs, clubs and restaurants, followed by the electronic goods sector. Also likely to be affected are the furniture and clothes sectors. And home improvements could take a back seat too.
There are, however, two areas where most people say they will not cut back - food and alcohol. Only 16% are planning to reduce expenditure on food, possibly because most people believe they are spending as little as they can on food already.
10 May 2007 © Moneyextra.com
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