Interest rate to hit 2% next year, warns Andrew Sentance

Posted on April 11th, 2011 | Categories - News

A rise in interest rates could put more consumers in financial difficulty.

A Bank of England policymaker is warning that interest rates may quadruple in the space of the next 12 months.

Interest rates could quadruple to 2% within a year, according to Monetary Policy Committee (MPC) member Andrew Sentance.

The hike would lead to a £100 a month rise in typical mortgage repayments for UK families.

Mr Sentance has been in favour of upping the rate to 1% for the last few months to bridle soaring inflation levels, however the MPC has again voted to keep the rate at the historic low of 0.5%.

He told Sky News: “I have argued in public that half a per cent interest rate rise is justified and I still think that that’s the case. I’m not sure I am swimming against the tide because I think the balance of opinion has been shifting in that direction. We are meant to control inflation and we put in place some very low interest rates to deal with the deepening recession in 2009”.

He continued: “Now the economy is recovering … and we are seeing inflationary pressures particularly coming from the world economy so we need to begin to adjust interest rates in a gradual way in order to get back into a more normal state”.

He added that the figures suggest that the rate should go up to 2% next year.

With statistics from the Centre for Economics and Business Research already showing that British consumers have 2.8% less money to spend in 2011 compared with 2009, a rise would mean a further tightening of belts for the majority of UK families. The figures mark the largest fall in disposable incomes in peacetime since 1921.