GlobalData says: “…another unwelcome dampener”
Following today’s (Thursday 2 August) increase in UK interest rates, Patrick O’Brien, a leading data and analytics company,
“While the Bank of England believes that the UK economy is in strong enough shape to withstand an interest rate increase, UK retailers will be scratching their heads, wondering where this confidence is coming from.
“Consumer borrowing continues to climb, despite wages finally rising faster than inflation, but we do not believe that this is going to create a much needed boost for the high street. As Lord Wolfson made clear in Next’s results announcement on Wednesday, the hot weather clothing sales boost is bringing forward August spend, rather than creating additional spend.
“Food inflation has reduced the money consumers have left to spend on non-essential purchases, leading to increased trading down across retail. This is even happening in sectors not previously known for being price driven, such as kitchens and bathrooms, as Travis Perkins highlighted with its poor results at DIY retailer Wickes.
“Many retailers have collapsed this year, with more to come in the coming months. As retail braces itself for the possibility of tumultuous Brexit decisions, with talk of stockpiling in preparation for an exit from the EU, any dampening of shopper spending power, however slight, cannot be welcomed.”
Paresh Raja, CEO of bridging lender Market Financial Solutions, also reacted to the news.
“Since interest rates first rose from the record low 0.25% to 0.5% in November last year, there have been strong predictions that a further rate increase would follow in the months soon after. However, rising inflation coupled with stagnant economic growth in Q1 2018 put such a move on hold. Now, following the steady growth of the UK economy over the summer months, the Bank of England has today taken the bold step to increase the base rate of interest to 0.75% – the highest it has been in nearly a decade.
“The impact this will have on UK consumers will vary. Those with savings accounts will enjoy a marginal increase in returns. However, for those homeowners paying off variable or tracker mortgages, they will now be faced with an increase in their monthly payments, which could place considerable strain on households. What’s more, this rate rise will mean that banks will be more cautious when it comes to approving mortgage applications. The stringent lending measures that have been imposed since the onset of the financial crisis a decade ago have made it tough for people to access finance from high street lenders, and this latest rise could make it more difficult for people to successfully acquire a mortgage from a bank due to the increase in monthly payments they will now face.”
With Market Financial Solutions now over 11 years old, Paresh has become a prominent commentator on issues within the finance, property and investment sectors – he is regularly featured in the national and trade press, so I hope this quote is of use to you. Please do let me know if you wish to run with the comment as part of anything you’re working on, or if you require anything from Paresh more catered to a specific topic or angle.
