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Bank of England urged to start raising interest rates

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.”  

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  • Sibley 8th June 2011 at 9:57 am

    I really can’t see IR going up soon. The value of my house in Maidstone is already dropping, any IR rises and I’ll be in more negative equity than I already am!

  • Chris Hulme 7th June 2011 at 3:47 pm

    Whether Law has been wrong or right in the past is irrelevant here as he does have a point. Whether we like it or not, its easier to accommodate small intermittent rises over a period of time than large rises over a short space of time.
    Lets not forget, Trevor McDonald in his programmes going back to 2003 where he cited the “housing crash would happen imminently” each year until it happened. There’s plenty out there who will be right, but not by the virtue of knowledge, purely by the virtue of luck and timing! After all, you can create almost any message you want with all the info and data that’s out there, it just a matter of interpretation….

  • Dan McGeehan 7th June 2011 at 1:21 pm

    The IMF have stated that they expect inflation to fall back to 2% in 2012. Stuart Law expects house prices to rise by 5% in 2011. According to Halifax they have fallen by 4.2% compared to this time last year and 1.2% in the last 3 months and they see a trend of moderate decline.

    Yet another press release by someone seeking publicity.