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Rate rise surprises market

The Bank of England’s decision to raise interest rates by a quarter of a point to 4.75 per cent caught the markets by surprise.

The monetary policy committee says last week’s move is in response to its expectation that inflation will remain above the 2 per cent target for at least the short term.

This was the first rate change since August 2005 and the first rise in two years.

Hamptons International technical director Jonathan Cornell says mortgage clients on tracker or discounted deals will see monthly mortgage payments rise. A 200,000 interest-only mortgage will rise by around 41 a month.

Principality Building Society managing director Tracy Morshead says experts were divided on whether the MPC would make a move this month and the industry hopes this is a one-off rather than the first of a series of rises that could significantly slow down the housing market.

F&C head of asset allocation Paul Niven says the futures markets priced in the rise in the fourth quarter but since the rise, interest rate futures markets are pricing in a further increase to 5 per cent by the end of the year.

John Charcol senior technical manager Ray Boulger says: “Speculation about a base rate move has been rife in the last month, partly because the next quarterly inflation report is out next week. This suggests the MPC was particularly concerned about the increase in the consumer price index to 2.5 per cent and expectations that rising energy costs will push it higher.”


Sales or trails?

Norwich Union has set off a fierce industry debate by offering 20 per cent up-front commission on regular-contribution business into its invest- ment funds.

OFT tells regulator to get menu sums right

The FSA has been forced to change the way it calculates the payment menu average commission rates after the Office of Fair Trading found that they are skewed against advisers. The move comes a year and a half after Aifa first dem- anded action over calculation discrepancies and was forced to report the FSA to […]

L&G looks to develop fund range

Legal & General Investment Management is looking at expanding its range of actively managed funds with the launch of strategic bond, high-alpha and hedge fund products. The news comes in the same week that L&G IM ditched its European equities team of four, headed by Alia Baig, and moved its underperforming 156m European fund to […]

Changes to early exit pension charges

In November last year, the FCA announced that from 31 March 2017, early exit pension charges will be capped at 1% for those customers who are eligible to access their retirement savings from age of 55. The rules also state that for new personal pension plans started after that date, or on new increments into […]


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