Interest rates expected to be lifted in short-term

| October 27, 2010 | 0 Comments

Economists have warned that interest rates could rise sooner than expected - and the warning came hot on the heels of a double dose of good news for the UK economy.

Yesterday, the Office for National Statistics (ONS) revealed UK economic growth for the third quarter slowed to 0.8%, albeit double the rate analysts had forecast.

Economists had expected economic growth to slow – in light of the Government’s massive spending cuts – designed to bring down the budget deficit.

The spending cuts have received mixed responses; many have been critical of them warning that slashing the deficit too quickly could pose a threat to economic recovery and push the UK back into a recession.

Also yesterday, credit rating agency Standard and Poor’s (S&P) expressed its support for the Coalition Government’s handling of the UK economy after revising its outlook on the UK economy to “stable” from “negative” and affirmed its top AAA credit rating for Britain.

Meanwhile, returning to the matter of interest rates, Andrew Sentance, one of the Bank of England’s Monetary Policy Committee (MPC) members, has argued the case for raising them, in order to battle stubbornly high inflation.

Mr Sentance has, at the last four rate-setting meetings, voted for the base rate to be lifted and he recently warned that the Bank faces losing its credibility if it is not seen to be fighting inflation – which at 3.1% has been above the 2% target for ten consecutive months.

Since March 2009, interest rates have been at the historically low level of 0.5% and many economists forecast little change in the short term.

However, following yesterday’s better-than-expected growth figures, some economists are predicting two rate rises in the near-term, with a base rate of at least 1% by the end of next year.

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