Why are interest rates going down when they said Brexit would cause them to go up?

(8 Posts)
WhoTheFuckIsSimon Thu 07-Jul-16 10:45:14

One of the Bremains campaign points was that a Brexit result would cause interest rates to rocket and now the opposite seems to be happening.

I get its all to do with controlling inflation but why is the opposite happening to what they thought and is this likely to be a long term thing?

I have savings, I don't like low interest rates! grin

lljkk Thu 07-Jul-16 11:07:35

I don't know why whatever was predicted before.
Interest rates go down when BoE wants to encourage investment, money is cheap to borrow so more money freed up to invest. Rates go up when economy is overheating or...

Maybe Cameron was predicting mortgage rate rises because inflation might go up as the pound devalued, and BoE strategy is to raise interest rates to keep inflation down.

Millyonthefloss2 Thu 07-Jul-16 11:14:31

is this likely to be a long term thing? I have read in various places that interest rates may fall to 0 by the end of the year.

This is what Martin Lewis says:

"Q. What's going to happen to interest rates?

A. That's a very difficult one to call. There are at least two competing pressures here.

Normally, when the pound drops, you would increase the UK base rate. This makes people want to buy pounds with foreign currencies as they can get a better return, thus strengthening the rate. This is especially important as a weak pound makes imports more expensive, which increases inflation.

Yet there are also worries about an economic downturn. There are two main possible risks that this could happen. Firstly because of sentiment change now, and later on because of changing trade relationships when we leave the EU.

To try to prevent it, you want economic stimulus, and that means cutting interest rates – as then it encourages people to spend rather than save. And while it seems with UK base rates stuck at 0.5% there's not much room to cut, some countries have even gone as far as negative interest rates.

Overall my suspicion (and this is pure guesswork) is that interest rates will remain roughly similar to as they are now, or perhaps be cut a touch if things go wrong. But this is an ever-changing scenario."

Millyonthefloss2 Thu 07-Jul-16 11:16:46

Here is the link to his Brexit Q and A in full:

www.moneysavingexpert.com/news/family/2016/06/martins-reaction-to-brexit

tropicalwaterdiver Thu 07-Jul-16 11:19:23

My understanding is due to GBP falling, to give banks/companies access to cheaper capital to overcome their immediate losses.

WhoTheFuckIsSimon Thu 07-Jul-16 12:03:51

Thanks everyone. Will read that Martin Lewis link now.

BreakingDad77 Thu 07-Jul-16 12:13:30

Also people need to remember all we have done is had a vote, we haven't worked out what deal is going to happen and the implications when we actually leave.

Justchanged Thu 07-Jul-16 18:05:49

As Martin Lewis said, a falling pound increases import prices so leads to higher inflation. This could mean the BOE raises interests rates to quell inflation. Higher interests also boost the value of the pound.

However, higher interest rates tend to reduce demand. Given that confidence is low, raising interest rates may send the economy falling still further.

So the Bank of England is cut between a rock and a hard place. at the moment it seems to think demand and confidence is low, so that outweighs the inflation issue.

In a nutshell, it's a sign that they are seriously worried about the economic fallout, but at least are doing their best to manage it.

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