Warning on higher UK interest rates

Debt-burdened British consumers should beware as the Bank of England (BoE) warned that interest rates may be rising in the very near future.

    The interest rates were unlikely to rocket upwards as they had done in the late 1980s

    Paul Tucker of the BoE Monetary Policy Committee said on Thursday prudent households should be wary of overstretching themselves and not planning for the likelihood of higher borrowing costs ahead.

    "Given the debate about household debt, it is worth bearing in mind that the current level of short-term interest rates is most likely below their long-term average," Tucker said.

    "So that personal finances would prudently be managed on the basis that rates are likely to be somewhat higher on average in the medium term."

    But Tucker also said that interest rates were unlikely to rocket upwards as they had done in the late 1980s, precipitating a collapse in the housing market, as policymakers struggled to tame rampant inflation.

    "Given the debate about household debt, it is worth bearing in mind that the current level of short-term interest rates is most likely below their long-term average"

    Paul Tucker,                         BoE Monetary Policy Committee

    "A benefit of the current regime should be that households are less likely to have their balance sheets torpedoed by rocketing official interest rates as the authorities belatedly struggle to correct past policy mistakes," he said.

    He added that some rise in debt levels was only to be expected given the economic stability of recent years but that it was difficult to say how much was too much.

    Earlier in August, the BoE held interest rates steady at their 48-year low of 3.5%, but Tucker revealed that he was one of the committee members who explored the argument for a rise in rates at that meeting.

    Most economists agree that interest rates have seen the end of their sliding days.

    In a Reuters poll this week, only 16 out of 45 economists thought rates would be lowered in coming months. But they were unanimous that there would be no change at next week’s September meeting.

    SOURCE: Agencies


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