Saturday 3 December 2016

Bank of England to hike rates within next six months

Svenja O'Donnell

Published 21/12/2010 | 05:00

Bank of England policy makers remain divided over the need to curb inflation or increase bond purchases to counteract the effect on the economy of the UK government's fiscal squeeze. Photo: Getty Images
Bank of England policy makers remain divided over the need to curb inflation or increase bond purchases to counteract the effect on the economy of the UK government's fiscal squeeze. Photo: Getty Images

Bank of England will start raising interest rates within six months to curb inflation, the Confederation of British Industry (CBI) said.

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The Monetary Policy Committee will increase its benchmark interest rate by a quarter-point every three months from the second quarter of 2011 until mid-2012, the London-based group said in a report yesterday. It will then step up the pace of rises to end that year with a rate of 2.75pc.

"The persistent strength of energy and commodity prices is a growing concern, as it is likely to mean that inflation does not fall back quite as sharply as many hope," said CBI chief economic adviser Ian McCafferty.

"Growth at the start of 2011 is likely to be very sluggish, although we do expect the recovery itself to stay on track."

Bank of England policy makers remain divided over the need to curb inflation or increase bond purchases to counteract the effect on the economy of the government's fiscal squeeze.

Inflation accelerated to 3.3pc in November, surpassing the government's 3pc limit for a ninth month.

Consumer-price growth will "significantly exceed" the central bank's 2pc target next year and only fall "just below" the goal in the first quarter of 2012, CBI forecast. Inflation will end 2012 at 2.4pc.

CBI said the economy would grow 0.6pc in the current quarter before slowing to 0.2pc in the first three months of 2011.

Growth will average 2pc in 2011, it said, maintaining a September prediction, and accelerate to 2.4pc in 2012. It also forecasts that house prices will fall about 4pc next year and remain unchanged in 2012.

Gross mortgage lending fell 5pc to £11.1bn (€13.1bn) in November from the previous month, the Council of Mortgage Lenders said yesterday. (Bloomberg)

Irish Independent

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