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Interest Rates May Rise Earlier Than Predicted

Written By On 05/11/2013

Just three months ago the Bank of England announced that they will not be looking to raise interest rates from the current half a per cent until unemployment falls to at least seven per cent. As you can see in one of our previous articles Mark Carney Announces Interest Rate Plans Governor Mark Carney could not foresee that happening before the end of 2016.

However, the National Institute of Economics and Social Research disagree, because they believe the bank will need to make rates higher at least a year earlier than Mr Carney predicted.

The well renowned NIESR feel that the BOE will have no option to wait around long enough for unemployment to hit their strategic target. They say their alternatives will be restricted because of higher consumer spending plus a possible house price bubble. This will in turn force their hand to raise interest rates earlier than anticipated in order to relieve the economy from extra pressure.

The brain engine also changed their prediction for economic growth from three months ago. They increased the current year by 0.2% to 1.4% and next year by the same margin to 2%.

People out of work across Britain has been falling and is currently at 7.7%. Last month's BOE minutes show positive signs of it continuing in the same manner and it also gave strong indications of quicker than anticipated economic growth.

The NIESR made it clear that the UK's consumer spending is strongly linked to stabilisation and families across the country are struggling to save or hang on to what they had.

Their director Jonathan Portes commented that,

There may be a sense that consumer spending and possibly house prices are rising in a way that makes an ultra loose policy unnecessary.