The Bank of England must react more quickly to economic data if the UK is to avoid a series of panic rate rises in 2012, says Stuart Law, Chief Executive of Assetz, who is calling for interest rates to increase to 1% by the end of the year.
Stuart Law, Chief Executive of Assetz, says:
“The Bank of England’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.
WIt is now a well known fact that the Monetary Policy Committee was far too slow to reduce interest rates as the UK entered the recession and eventually had to rush through a rapid reduction in rates to try to stimulate the economy.
“Its 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.
WIf the Bank delays too much in introducing gradual interest rate increases now then we could see the need for a panic move of greater increases in 2012 or 2013 to reflect a strengthening economy and to combat inflation.
“We are calling on the Bank to increase interest rates to 1% by the end of this year, 0.25% by August and 0.25% in the autumn. This would have a negligible impact on homeowners who would continue to benefit from low rates.
"Rates should continue to be raised gradually after that to reflect the recovery. 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, benefitting homeowners.
"Savings rates would also increase generating more capital for those living on savings.”
