Investor Points of Few | The Rise of Uninteresting Rates

By Alan Steel

It’s quickly become a big headline-grabbing story about a very small and rather uninteresting thing. 

The Bank of England today announced a 0.25% rise in the UK benchmark interest rate.

“Oh, the horror… the interest rate horror…”

Very Small Things

But what that actually means is our current amoeba-sized 0.25% base bank rate will simply increase to the dizzying heights of 0.5% – an historically low figure that we eventually arrived at in 2009, and abandoned briefly back in August 2016, as the severity of the financial crisis began to hit home. 

Folks, that 0.25% is a ONE FOUR-HUNDREDTH in old money, or “buttons” as my dad would have said.

Sadly, that little factoid will not dissuade financial journalists from attending this latest headline writer’s gala en masse with fresh theories about the impending economic apocalypse.

So it seem a consensus of short memories will once again prevail.

The Financial Fish Supper Test

But for those of you who’ve grown bored after eight years of unrealised Armageddon predictions, here’s an easy way to put this announcement into the perspective it deserves.

We’ll call it the Fish Supper test. And it’s relatively easily done.

“Have you ever really thought about your path to financial security? Click here for Alan Steel Asset Management to see some of the folks who have.”

Just ask yourself if you’d be impressed if you walked into your local chippie and they offered you an additional 0.25% onto your meal for free.

Not much of an incentive really, eh? In fact, would you even notice? And what is that in real terms anyway; a smidgen of broon sauce? The tip of a chip? A sprinkling of vinegar?

Open Rate Impact

Now, for those folks who have borrowings, like a mortgage, that have been sitting on the open market rate, and probably enjoying the lower payments this might afford, this minuscule dot probably means a slightly higher monthly payment will come off your next direct debit.

However, for those of us who remember the below time frame, the current interest change is, in a word, uninteresting:

 

Night Sweats in 1981

And you should know that since the 17th century when they first founded a Bank of England, interest rates have varied considerably; from their historic lows of the last eight years or so, to their financially painful, night-sweat inducing highs of 17% back in 1981, as Thatcher’s government tried to tackle rampant inflation.

Keep that in mind as all the sensationally apocalyptic newspaper drivel that will surely accompany this announcement makes a three course meal out of something you wouldn’t even notice on your favourite takeaway.

Wealth requires clarity.

Get some good advice.

Alan Steel, Chairman, Alan Steel Asset Management

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