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The BM Blog: Interest rates… and why kids owe Dad £14,868 a year

11 July, 2017

Yesterday the Bank of England held base rates at 0.25%. As was expected. What we didn’t see coming was that 3 out of the 8 monetary messiahs on the Committee voted for a hike. This is all very exciting in banking circles and sparked action in the markets. Why might they look at increasing rates?

In a word – inflation. This is currently the bogeyman hiding around the corner – at 2.9% we’re starting to feel the pinch as costs of living go up faster than our wages. When interest rates are low, the theory is that we all shout whoopee and borrow and spend and splurge and this drives up prices and makes the economy overheat. So the powers that be slap up interest rates, which then act a bit like your Mum turning up on one of your dates. It dampens your ardour and we don’t spend, we batten down the hatches and inflation calms down.

Trouble is, putting rates up is all a bit risky. We’re not feeling super confident with the political mess we’re in, growth is slowing and wages are standing still so it’s a very delicate balancing act – they don’t want to act too fast or too hard and scare us all into recession.

Pound heads North but debt could get pricer

As ever there are thousands of factors all pushing and pulling at the same time and this interest rate decision impacts the pound too. Traders see 3 powers-that-be from the Bank of England vote for a rise – and jump to the conclusion that a rise is on the cards sooner than we all thought. If interest rates in the UK go up, then we become a much more appealing savings home for international money. So more people are likely to pile into the UK and for that they need pounds. And higher demand for pounds means a higher price for the pound. So sterling jumps – opening yet another chapter in its very hectic year.

Back on main street, yesterday’s meeting does mean all of us with debt should just take a moment to think about a potential rate rise and what this would mean for affordability of any variable mortgages or debts.

Good old Dad

One debt which is probably immune from the Bank of England’s decisions is debt from our parents. As we head towards Father’s Day on Sunday, new research reveals that £6.5 billion is expected to be lent by the Bank of Mum and Dad this year to help their kids get on to the property ladder. That’s more than the GDP of Bhutan, the Maldives or Barbados!

So if you feel like saying thanks to Dad, maybe push the boat out a bit. We spend an average of £34 on Dad compared to £62 on Mum.

And here’s a final Dad money fact. The average Dad in Britain apparently spends 4 hours a week as a taxi driver. If he installed a meter in his car, he would earn an average £14,868 a year in taxi fares from his children. So come on kids. That deserves at least a cup of tea in bed for Dad this Sunday!