Last month Mark Carney issued “forward guidance” over interest rates in order to restore confidence in the UK housing market. Mark Carney’s forward guidance indicates that the Bank of England do not expect interest rates to increase till at least 2016. The Bank of England has indicated that it will keep interest rates at the current level of 0.5% until the UK unemployment rate falls below 7%. Unemployment currently stands at 7.8% and the fact that this not forecast to fall below 7% until 2016 is indicative of the weak economic conditions prevailing in the UK. The interest rates will also be dependent on some other factors including “financial stability” in the UK.
The principal behind the forward guidance is that if the market understands that interest rates will remain low for a few years, this will give the banks the confidence to lend and consumers the confidence to borrow.
So what can we take from the Bank of England’s Forward guidance? Firstly it is safe to assume that interest rates will remain low for a while. The Bank of England clearly intend to put all their efforts into maintaining interest rates at record lows in a bid to stimulate the housing market and Britain’s already flagging economy. Contractors and self-employed businesses can benefit from this as well run businesses will be able to secure cheap credit in order to develop and expand their businesses. Contractors with a strong earnings history will find it easier to obtain competitive mortgage rates and invest in property.