The Bank of England must begin to raise interest rates gradually this year or risk being forced into a series of panic hikes in 2012, says Stuart Law, chief executive at Assetz.
Law is calling on the Bank to increase the base rate to 1% by the end of 2011, through a rise of 0.25% in August and a further increase of 0.25% in the autumn.
He says this would have a negligible impact on homeowners but would prevent the need for more significant hikes in 2012 or 2013.
Law says: “The Bank’s refusal to raise interest rates so far this year, in spite of improving economic conditions and growing inflation, could result in a series of panic rate rises in the next two years which would have a serious impact on homeowners.
“The Monetary Policy Committee’s continued reluctance to respond to recent statistics, including a booming services sector, falling unemployment, rising inflation and strengthening house prices, means it will be forced to act suddenly when these early indications of market recovery turn into irrefutable evidence and are reflected in GDP, continued house price growth and other economic data.”
Law adds that following an increase in the base rate to 1% by the end of this year, there should be further gradual increases to reflect the UK’s economic recovery.
He says: “Gradual base rate rises would also be more likely to permit banks and building societies to react and start to reduce their own lending margins, benefiting homeowners. Savings rates would also increase generating more capital for those living on savings.”