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The Japanese Factor
What the unfolding chaos in Japan means for household costs
Markets around the world are reacting to fears that events in Japan could threaten the global economic recovery. City economists expect that the Bank of England will be forced to hold the cost of borrowing at the current historic low of 0.5% for longer than planned. Bank rates seem likely to rise by a quarter point in August, rather than May, and a second quarter-point rise not expected until February 2012, instead of this November.
As a result, mortgage costs have already begun to fall, with Northern Rock and ING Direct already cutting their fixed rates. With further falls likely, we’re suggesting that homeowners hold fire before fixing their loans. There is a high likelihood that fixed rates will fall below 4% in the wake of the Japanese crisis. The same hold true for borrowers on low standard variable rates (SRVs) as they too could benefit from a prolonged period of low rates before switching deals.
However, household energy costs seem set to rise in the wake of the Japanese earthquake and tsunami. Some analysts predict a jump of 15% - the equivalent to £170 per year for the above household bill. Wholesale gas is already at its highest price for more than two years and electricity prices are at an all time high. With pay rises currently being outstripped by inflation, families are facing a continued squeeze in living standards as pay rises are outstripped by inflation for the foreseeable future.
Chartered Financial Planner