The Centre for Economics and Business Research (CEBR), for example, said last week that it now expects the base rate to rise to 1% in the final three months of 2014, while investment bank Citi is now predicting an end-of-year rate of 0.75%.
However, Bank of England Governor, Mark Carney has since claimed that there is, "no immediate need to increase interest rates".
Thinking about rate rises…
Nevertheless, all the rumours have brought the issue back into the headlines – and to the minds of British savers and borrowers.
And while the savers are hoping that Mark Carney will change his mind, borrowers of the UK are mostly praying that he will keep the base rate at 0.5%, the historically low level at which it has been stuck since March 2009.
For the purpose of context, that’s a far cry from the 17% peak soon after Margaret Thatcher came to power in 1979, not to mention the 1989 high of 15%, which had dreadful consequences for ordinary homeowners.
Here, we take a closer look at whether we really risk a return to those bad old days, and what an interest rate rise will mean for both savers and borrowers.
For mortgage borrowers, the last five years have been a golden period of low-interest repayments. However, having been lulled into a false sense of security by the low level of the base rate, they risk being propelled into financial strife should it suddenly come to an end.
The big fear is that interest rate rises would have a disastrous effect on millions of houses where mortgage and debt repayments already make a big dent in the money coming in each month. Mark Carney has said that any increases, when they do come, will be gradual.
However, rates would not have to shoot back up into double digits to have a big impact. Research from the Resolution Foundation thinktank indicates that about 1million homes would be left teetering on the edge of financial ruin even if the base rate only went back up to 3%.
Should it hit 5%, meanwhile, some 2million households would be forced to spend more than half of their income on their mortgage payments.
If you already have a mortgage: Anyone with a tracker mortgage, which tracks the base rate up and down whenever it moves, may therefore want to consider switching to a fixed rate deal now.
And as rates are expected to keep going up over the next few years, a longer term deal such as five-year fix could be the best way forward. For example, Yorkshire Building Society has a fixed rate deal for this long which is priced at 2.84% and open to anyone who has a 25% to put down.
If you are buying your first home: While house prices have been rising (Nationwide reported today that average values were up 8.8% compared to January last year), at least mortgage rates are still low when it comes to buying your first home.
And longer-term fixed rate deals are available for smaller deposits too, although rates will be higher. For example, Clydesdale Bank for example, has a three-year fix priced at 4.99% with a 5% deposit, while you can fix in at the same cost with Principality building society for five years.
For more 5% deposit mortgage deals, visit our dedicated page.
There is no doubt that the last five years or so have been a nightmare for savers, who have struggled to even beat inflation, now hovering at around 2% (Consumer Prices Index).
The average cash ISA rate has shrunk from 1.87% a year ago to just 1.65% today and the best easy access savings account on the market at the moment – from the AA – pays just 1.50% (including a 12-month 1% bonus).
Unlike cash-strapped borrowers, savers are therefore willing Mark Carney to ease their pain and start lifting the base rate sooner rather than later.
The bad news for savers, however, is that the base rate would have to go up quite a lot to have any real impact on their returns.
While savings rates are linked to the level of the base rate, most do not track it in the same way as tracker mortgage rates, for example. And that means providers can choose whether or not to pass any base rate increase on in its entirety.
In the meantime, it’s still worth using up your full £5,750 cash ISA allowance for this tax year (until April 5) as, while it’s still low, the interest you earn will be paid free of tax. You can then top up your ISA with a new increased limit from next year tax year which starts on April 6.
Savers can also look to alternatives such as peer-to-peer lenders, which can provide returns of 5.00% or even more on your cash – although you won’t be covered under the Financial Services Compensation Scheme (FSCS) for the first £85,000.
It’s also worth looking at the slightly higher rates available on shorter-term fixed-rate accounts. It may, for example, be worth taking out BM Savings’ postal one-year fixed-rate bond at 1.75% which you only need £1 to open. And then reassess the situation in a year’s time.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.