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Comment on the interest rate rise

02/11/2017

By Dr Stuart Farquhar, Senior Lecturer, Department of Finance, Accounting, Systems and Economics

Today’s 0.25% increase in interest rates back to the pre-Brexit vote rate of 0.5% - whilst very small in itself - may have considerable negative effects on households in the region. 

According to figures released this week, average UK debt per person totals £8,000 excluding mortgage debt.

money notes

Around 25% of people in the research identified that they were struggling to make ends meet. Whilst the average debt in Wolverhampton is marginally lower than the national average, income per head of the population is also below the UK average. It is therefore likely that any interest rate rise, even a small one such as today’s, may have a significant impact on local households.

With real incomes falling interest rate rises are likely to squeeze consumer spending or lead to more borrowing as families simply try to survive. For local businesses, the interest rate rise, whilst unsurprising, may not be good news in the near future if consumer spending is curtailed.

However, manufacturing in the West Midlands region has performed relatively well in the export market compared to other regions of the UK and the fall in the £ might help local exporters offset reductions in consumer spending. However, with the country no nearer to knowing the outcome of Brexit negotiations uncertainty about the macroeconomy will likely continue for some time yet and this is not good news for local households or businesses.

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