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Brexit

How Will Brexit Effect Interest Rates and What Should I do About it?


Many of us are concerned about what effect Brexit might have on us. It could be that we are hoping that it will make things better for us financially or we may be worried that it will make things worse. As we all have different financial situations then changes might affect all of differently. For example, a rise in interest rates could be good for those of us who relay on interest rates for good savings returns but those of us that have loans would find things much easier if interest rates remained lower.

What are Interest Rates?
Interest rates on products are changed by the provider of that product and if they are variable then they can be changed at any time. However, the Bank of England base rate, is changed by the Bank of England and if this changes then financial companies will tend to change their rates as a result. However, some will just change their rates from time to time anyway.

Predicting Interest Rates
It is quite difficult to actually predict what might happen with interest rates. The Bank of England have criteria that they look at in order to judge whether they think that interest rates should be changed. A panel discuss it and then vote on whether there should be a change to the rates and in what direction and if they all agree then the rate is changed. One of the criteria they look at is inflation and the government has set them a target of trying to keep inflation at 2%. This is the change in prices. The aim is not to allow prices to rise too quickly as this will make it difficult for people to afford the things that they normally buy and will not give salaries and wages a chance to rise in order to keep up. By increasing interest rates people will pay more interest on loans and mortgages and this means that people will generally have less money to spend and this will lower inflation. For savers an increase in the rate will encourage saving as the reward for saving is higher and therefore this will also reduce spending. If rates go down then then spending will increase as savers will have less incentive not to spend their money and interest payments on borrowing will be less so many households will have more money to spend as well.

Spending is important for the economy as it increases income for businesses and they can employ more people or increase the salaries of those they already employ and so the economy will grow. However, if inflation goes up really quickly then prices will increase massively and mean that people will suddenly have to find more money just to buy the most basic things.

How will Brexit Impact Things?
Predicting what might happen in the future is never easy. Brexit could mean a lot of things for the UK and until we have agreed terms and it has actually happened it is hard to know what effect it might have. There will definitely be uncertainty for a while which makes everybody worry. This tends to mean that people reduce their investments in the UK which can have an effect on the stock market and the value of the pound and people tend to spend less money through fear that prices might increase. However, this might last just a few hours or it could last much longer. It is very hard to know. Also once we leave the EU people might relax and decide it is then safe to spend lots of money which could in itself lead to an increase in inflation. So it is very hard to predict what might happen and therefore you need to be prepared for everything.

How Can I Prepare?
It is pretty difficult to prepare yourself for everything. However, if you can have your finances in a state where a change of interest rates will not impact you too much then this is probably all you can do. So if you have a lot of loans, then consider whether you can cope with an increase in interest rates. If you rely on savings interest then you will need to think about whether you will manage if rates go down. If you feel that things could be difficult then look at ways that you could potentially earn more money or spend less so that you can more easily manage. You will not necessarily need to act right away; unless you think it would really help to put your mind at rest, but having a plan to fall back on in case you need it can be very useful. Therefore take a look at your bank statements so that you can see how much you normally earn and spend and think about where you might be able to increase your earning or reduce what you are spending.

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