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Are interest rate cuts about to stall?

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November 22, 2024

TLDR: Inflation in the UK has risen above the Bank of England's target at 2.3%, causing concern for interest rates and economy. This increase is partly due to cost rises from national insurance and minimum wage. Donald Trump as U.S. President-elect could potentially bring further inflationary pressure. The podcast discusses mortgage options, tax system issues, refunding faulty products, and quitting work with enough savings.

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In the latest episode of the This Is Money podcast, Georgie Frost, Helen Crane, and Simon Lambert delve into pressing economic topics, focusing on interest rates, inflation, and financial planning for borrowers and savers. With inflation climbing back to 2.3%, the implications for interest rates are a central theme.

Key Discussion Points

Rising Inflation and Its Impact

  • Inflation in the UK has recently surged to 2.3%, exceeding the Bank of England's 2% target. This rise is sparking concerns about the future trajectory of interest rates.
  • Experts predict that this inflation spike makes further interest rate cuts less likely, particularly with current projections suggesting that the base rate might not decline until spring next year.

Mortgage Decisions: Two-Year vs. Five-Year Fixes

  • As mortgage rates are expected to increase in response to the inflation rise, borrowers are faced with the decision of whether to fix their mortgages for two or five years.
  • Much debate surrounds this choice:
    • A two-year fix may offer short-term relief but exposes borrowers to potential rate hikes soon after.
    • A five-year fix offers stability but at a potentially higher rate.

Agricultural Property and Inheritance Tax

  • A significant discussion arose regarding the impacts of proposed changes to inheritance tax affecting farmers. The government's move to cap agricultural property relief at £1M has incited protests among farmers, viewing it as an unfair burden amidst rising costs and economic challenges.

Insights on Consumer Refund Practices

  • Helen Crane recounted a listener's problem with refunded purchases made via gift vouchers. This sparked discussion on how refund policies can entrap consumers, especially when they inadvertently discard vouchers after use.

Summary of Expert Opinions

  • Andrew Bailey, the Governor of the Bank of England, has indicated the current inflation dynamics necessitate a closer eye on how interest rates can be adjusted in the future, assessing both domestic and international pressures.
  • The hosts noted that the cost of living crisis continues to strain budgets, where not only are mortgage repayments increasing, but everyday expenses such as groceries and energy bills add to the financial pressure.

Practical Applications for Fortunately Positioned Consumers

  • For Savers: A potential increase in savings rates could benefit savers as banks adjust their rates in light of inflation.
  • For Borrowers: Individuals seeking mortgages in the current climate should carefully assess their options based on their financial circumstances and consider consulting with a mortgage broker to best navigate the uncertain rate environment.

Final Thoughts

While economic forecasts remain convoluted and heavily dependent on inflation metrics and government policy decisions, the conversation emphasizes that the current climate necessitates caution. Listeners and consumers facing financial decisions should stay informed about inflation trends and explore banking options that align with their long-term financial goals.

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