Households expecting interest rate rise in next six months

Friday, May 30, 2014
1:00 AM

Householders are bracing themselves for an interest rate rise in the next six months.

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Survey data from Markit showed households’ financial concerns for the coming year were topped by fears of a rising cost of living, energy bills and interest rates.

Some 17% of mortgage holders felt there would be a “very significant” impact from rising rates.

Households have also brought forward their expectations of when rates will be hiked, with 23% now expecting this in the next six months, the figures showed.

It comes as Martin Weale, a member of the Bank of England’s rate-setting Monetary Policy Committee (MPC), said interest rates must start to rise “sooner” if policy-makers want to stick to plans to hike them only at a gradual pace.

In an interview with the Financial Times, he said: “If you want to have baby steps, you do have to start sooner. The question is: how close are we getting to ‘soon’? Of course, we can never be sure, but the economy... has sustained fairly rapid growth in demand.

“So I’m having to ask the question - and the answer is less definite than it was six months ago - ‘Where do I think the interest rate should be at the moment?’.”

The Bank rate has been on hold at a historic low of 0.5% for five years to try to help nurse the economy back to health but the UK recovery has intensified speculation about when it will need to rise.

Meanwhile the UK economy is growing at its fastest pace for more than a decade, according to figures from the CBI.

It said a survey of growth recorded in May gave the strongest reading since its data began in 2003.

The poll of 726 firms found a balance of plus 35% - the difference between those reporting higher output in the last three months and those saying it was lower. It was up from plus 25% in April.

It suggested the UK economy - which grew by 0.8% in the first three months of 2014 - had continued to perform strongly going into the second quarter, the CBI said.

The pace of growth was expected to remain above average, with a balance of plus 30% for expected output increase over the next three months.

The CBI highlighted strengthening indications of growth in retail sales as well as in business, professional and consumer services sectors. It said manufacturing output continued to grow at the same solid pace as the previous two months.

CBI deputy director-general Katja Hall said: “The UK economy is performing strongly thanks to rising business and consumer confidence, better credit conditions at home and improving global economic conditions.

“What’s encouraging is that growth is becoming more broad-based, with solid increases in business investment over the past year. This bodes well for the year ahead.

“But there are risks to the UK’s outlook from global developments, including the possibility that the situation in Ukraine and Russia could impact on global commodity prices.

“And with the eurozone crisis still far from being fully resolved, the UK continues to be exposed to a prolonged period of subdued activity in the region.”

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