Undesirable Attitudes and Delays in Interest Rate Hikes Decreases Likelihood of Bank Recovery

January 22, 2015
by admin in PPI News

The MPC had two votes down to ensuring that interest rates rise from its historic 0.5% low in 2014 to encourage homebuying in the country. Now, it has been pushed back to 2016. Will it do good or bad for the UK? Possibly not.

MPC members Ian McCafferty and Martin Wheale had previously voted for an increase in the interest rates of the United Kingdom to uplift the UK economy. However, because of below-expectation outcomes for UK’s inflation, some members had voted otherwise.

 

Another contributing factor to UK’s deflation is the effect of lower oil prices. Economists expect that inflation remains below target.

 

Chief UK Economist at IHS Global Insight Howard Archer said that the latest MPC meeting ensures that the BoE will not be raising rates until the following year. However, he still believes it could increase by 0.25% by November.

 

It also spells doom for most banks. Without an interest increase, deflation could result. This means that banks who are still earmarking compensation for mis sold PPI may continue for a few more years. Until inflation is addressed to nominal levels, banks may end up losing more than they can chew.

 

It would also mean big trouble for banks trying to rebuild their capital after the mis selling fiasco.