Business leaders warn interest rates “will have to rise sixfold in 2 years”


Rising inflation will force interest rates to “rise sixfold in 2 years” according to business leaders.

Charities predict repossessions will rise and business leaders say interest rates will have to increase to cope with inflation.

Top business leaders have warned that interest rates “will have to rise sixfold in 2 years” to cope with rising inflation.

The comments, which are sure to cause concern to millions of home owners, come as the Confederation of British Industry predicted that the Bank of England will be forced to begin increasing interest rates in spring as the cost of living soars. In the same vein, a number of major charities have also warned that repossessions are likely to increase over the next 12 months.

“Many households have been benefiting (from the low interest rates) in terms of mortgage payments, but that will start to turn over the next couple of years,” commented the CBI’s head of economic analysis Lai Wah Co.

The CBI said it expected interest rates to rise from their record lows of just 0.5% in Q2 next year. The body predicts interest rates will rise by a quarter of a percentage point each quarter before doubling to 0.5% increases in the middle of 2012. It expects the bank rate to rise to 2.75% by the end of 2012.

The news is bound to cause worry for millions of UK householders who are sure to be hit hard by a rise of 2.25% in mortgage rates. In yet more bad news for householders, economists have estimated that houses could lose 10% of their value from their peak earlier this year to the end of 2011.

“December brings to a close another difficult year for household finances. The UK economy looks to have avoided a double-dip recession in 2010, but there is little evidence that household finances have even begun to recover,” commented economist at research group Markit Tim Moore.

He added, “People have seen their spending power gradually eroded by stubbornly high inflation throughout the year and little in the way of income growth to compensate for this.”