IT has become “increasingly likely” that interest rates could skyrocket up to five fold “very soon”, according to an independent economist.
Julian Jessop claimed the Bank of England’s Monetary Policy Committee could hike its base rate from the current record low of 0.1 percent to as much as 0.5 percent. However, the “Brexit optimist” academic warned people not to panic because this would still represent a lower rate than the 0.75 percent in place before the pandemic struck at the beginning of last year.
He tweeted: “(It) looks increasingly likely that the #BoE (Bank of England) will raise interest rates much sooner than most anticipated, but don’t panic…
“A hike from 0.1 per cent to 0.25 percent (or even 0.5 percent) would still leave nominal rates near historic lows (and still lower than the pre-Covid level of 0.75 percent).
“Context is important.
“The economic backdrop and fiscal choices will have a far bigger impact on the public finances than any likely changes in short-term rates.
“And higher inflation at least keeps real rates low.
“Credibility is important too.
“Other CBs (Central Banks) are already raising rates or reducing asset purchases.
“Some on the MPC (Monetary Policy Committee) may be happy just to let the current QE (quantitative easing) programme expire and not announce any more for 2022, but a small rate hike on top would send a stronger message.”
He later added: “Consumer confidence is down in part because of inflation fears. The Bank needs to respond to this.”
Quantitative easing is a practice where banks print money in an effort to stimulate economic growth. Its downside is that it can lead to inflation increasing.
Mr Jessop spoke as homeowners were warned that they face the biggest surge in mortgage costs since the 2008 financial crash.
It comes as investors are reportedly bracing themselves for a string of interest rate rises to rein in rising inflation.
This has been fueled by the UK’s current supply chain crisis and the reopening of the economy from the Covid pandemic.
Consumers will also be stung by Boris Johnson’s National Insurance hike to fund social care in April, while council tax is expected to rise steeply too.
Samuel Tombs, economist at Pantheon Macro, said: “Our biggest concern is that the rise in mortgage rates implied by markets’ expectations for the Bank Rate would have a bigger impact on the economy. “Brinkwire Summary News”.