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Interest rates

The Bank of England raised interest rates five times between August 2006 and July 2007 in an attempt to control inflation and consumer spending (driven, in part, by borrowing against increased house prices). However, interest rates have recently been cut three times since December 2007 which was the first cut in rates in two years. Interest rates are widely expected to be cut again in 2008 in an attempt to stimulate growth in the economy following the ‘credit crunch’ and the current worldwide economic slowdown. Despite the cut, lenders are not currently responding by lowering all their mortgage rate deals. However, any cut in rates will need to be considered against the need to curb inflation which is currently rising above 2% (the government's target).

What are the implications?

• Increased stock market and currency volatility in response to changes in interest rates, particularly in the US.
• Cuts to interest rates may stimulate consumer spending.
• Cuts in interest rates are not currently being felt by house buyers and is impacting on those coming to the end of their fixed term mortgages or first time buyers. This may lead to an increase in levels of debt and possibly an increase in levels of poverty.
• A rise in repossessions as growing numbers of people are unable to pay their mortgages (see housing market), this is also being exacerbated by rising food and energy prices.
• Levels of individual giving may be affected if people’s levels of disposable income decline.
• The private sector is likely to have less money which may affect levels of corporate giving.
• However, rising inflation due to high food and energy prices may mean that the Bank of England will be under pressure to raise interest rates in the future in order to curb inflation.

Moving forward

This driver does not have direct implications for VCOs but it will impact on the other drivers listed below as well as many others. (There is often a relationship or interdependency between different drivers, which may be important to your organisation. As you scan each driver, it is important to think about its relationship or influence on others; if drivers are linked, then you need to think laterally to draw in all those that may be relevant.)

Stock market performance

Consumption culture and personal debt

Housing market

Increased consumer spending and confidence

Poverty and  inequality

Planned individual giving

However, here are some questions for your organisation to consider:

An increase in debt may impact on levels of individual giving.

• What strategies can your organisation put in place now to manage potential future changes in funding?
• Can you diversify your income sources or work in partnership with other organisations?

Organisations that work with homeless people, those in poverty or debt may find there is greater demand for their services.

How could an understanding of changing need help you to develop more effective services in the future? You could think about this in two ways:

• Opportunities to improve: Should you need to change how you work or be more responsive?
• Opportunities to innovate: Should you serve new or different users?