But what if their home loan climbs to, say, 4% after Bank rate finally starts to rise, as it must, once their fixed-rate deal ends.
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Shafik believes the future path of bank rate will probably be quicker than that implied by the market yield curve.
In a speech at the Institute of Directors, the former World Bank vice-president said: “I will wait until I am convinced that wage growth will be sustained at a level consistent with inflation returning to target before voting for an increase in Bank Rate”.
Officials with the bank indicated that oil prices, which remain low, and restrained wage growth will stave off inflation while they retain their record low key interest rate, Bloomberg Business reported.
The rise in USA rates would be the first since 2006 and there are fears it will trigger market disruption, also coming at a time when the global economy and China’s growth have been slowing.
The pound declined against all except one of its 16 major peers as Bank of England Deputy Governor for Markets and Banking Minouche Shafik said she will “proceed with caution” when considering voting for an interest-rate increase.
With inflation at minus 0.1 percent, there’s little pressure to act.
“There are many signs that the economy is normalising – the labour market is tightening, consumption growth is solid, investment is recovering, and even productivity growth is showing tentative signs of a return”, Shafik said.
Asked for her response to the Government’s decision to implement a national living wage, Dr Shafik said: “Our estimates are that it will have a modest effect on total wage growth”.
In spite of the rate cuts that have already happened and the fact that rates offered by tax free bond issuers now are lower than those offered a couple of years ago, tax free bonds continue to see significant oversubscriptions across multiple categories.
Sterling retreated from a three-week high against a broadly firmer dollar on Monday, with investors fairly certain that the Federal Reserve will raise interest rates this week for the first time in a decade.
Last week’s PMI surveys suggested growth in the dominant services sector jumped to a four-month high in November, but this was in contrast to readings for the other sectors of the economy, which showed manufacturing activity easing and expansion in the construction sector falling to a seven-month low.
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Members of the Bank’s nine-strong MPC, which includes Dr Shafik, voted eight to one to keep rates unchanged in its final decision of 2015, as they have done now for more than six years. “Having said that, I think all agents, and all members of the MPC, expect the future path to be gradual and limited”.
