"This may well be the year when the turn in the interest rate cycle takes effect – even if that first rise is just modest at 0.25%."
Richard Stone said: “The Bank of England’s stance already seems to have shifted from looking at potential further cuts to the next move being upwards – the issue is just one of timing. As the year progresses with continued high employment, increased clarity over the Brexit negotiations, inflation above target, wages rising and increasing US base rates putting Sterling under further pressure, this may well be the year when the turn in the interest rate cycle takes effect – even if that first rise is just modest at 0.25%.”
Earlier this week, a Saga poll revealed that over 50s are 'optimistic' that we will see a rise in the Bank of England Base Rate by the end of 2017.
Over 50s typically think that the rate will rise to 0.75%, as well as expecting a further increase in inflation in 2017.
Richard Stone added: “I believe the UK economy will continue to perform more strongly than anticipated. Unemployment remains low and employment is at near record levels. The boost from Sterling’s devaluation will continue to feed through – particularly for exporters to the EU who still have unfettered access to the single market but with substantially lower pricing in Euro terms. Inflation will rise, in part as a function of the impact of weaker Sterling, but also as a result of the relatively tight labour market. Without substantial changes in productivity this will likely start to feed through into higher wages."
Recent research from LMS also revealed that almost a quarter (23%) of remortgagors now expect a rate rise in the next year.
As a result, fixed five-year products more than doubled in popularity among those who switched their mortgage type: rising from just 8% to 19%.
The AMI also predicts that mortgage rates may start to rise irrespective of ongoing loose monetary policy, as global political and economic uncertainty puts pressure on long-term interest rates.
Although long-term interest rates fell in the immediate aftermath of August’s decision to cut rates, longer-term swap rates have risen since the start of November and coinciding with Trump’s victory.
The AMI says this will have an effect on mortgage pricing, although it is unlikely to show up until early 2017.
Earlier this month, HSBC confirmed the removal of its 0.99% two-year fixed rate as part of a series of fixed-rate increases.
