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Interest rates may rise soon say industry experts

24. Feb, 2011 Categories: News by Business Bank Accounts 0 Comments

As Bank of England policymakers begin to indicate their willingness to raise the base rate, interest rates may soon be on the rise in the UK.

Consumers at both ends of the finance market would be affected by rate hikes.  Personal and business loans and mortgages would most likely experience rate increases.  Additionally savers may find high interest savings accounts more accessible as well.

Monetary Policy Committee members Martin Weale and Andrew Sentance have been joined by Spencer Dale in calling for a rise in the base rate.  The February MPC meeting minutes indicate that the remaining six policymakers on the committee insist on keeping the base rate at 0.5 per cent for yet another month.

Rising commodity prices and the increase in VAT have been raising concerns regarding the country’s inflation rate.  January saw the Consumer Prices Index increase to a new high of 4 per cent, twice the BoE’s target rate.

Uncertainty is increasing among MPC members as indicated by growing support for a rate hike.  Both Mr Dale and Mr Weale recommended a 0.25 per cent rate increase.  Mr Sentance once again called for a rise of 0.5 per cent.

Bank of England deputy governor, Paul Tucker, stated that the MPC faced a very real dilemma regarding the propriety of raising the base rate.  Mr Tucker stated that it is going to take some time to return inflation back to a 2 per cent target.  The MPC has to strike a delicate balance between restricting inflation without undermining economic recovery, he added.

Mr Weale recently stated that price increases may become self-perpetuating if the expectations of consumers regarding inflation in the future change.  An expectation of high inflation rates can lead to UK consumers acting as if inflation has already occurred, he added.

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