Interest Rates Could Rise From End Of 2011.

What Would Happen If Interest Rates Rise?

Leading economists have added to the recent comments by Andrew Sentance by stating interest rates could start rising from the end of 2011.

The Bank of England’s Monetary Policy Committe is meeting this Thursday 9th December to decide on whether to drop, hold or raise the base rate. It is widely expected to keep rates held at the current 0.5 per cent.

Chief Economist of Think Tank Policy Exchange, Dr Andrew Lilico feels that rates will not start to rise until the third quarter of 2011. After this point, rates will reach 5.5% with 5-6 months.

The reason given for his prediction is due to the Bank’s need to curb inflation and hold back the investment driven boom. The current reported inflation rate is 3.2% – 1.2% above the 2% target. The BoE will not increase rates to bring this down today due to the fear of placing pressure on the recovery of the economy.

Morgan Stanley are a little more reserved and feel a 2 per cent base rate by 2012 is more likely.

Interest base rates reaching 5.5% would lead to an average mortgage rate of 9% going by todays average fixed mortgage rate.

At 9%, a £100,000 mortgage would see interest payments double from current levels.

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