FlightMan

Interest rates could soon hit 7.5 per cent as inflation risks spiralling out of control, senior economists have warned.
In an open letter, nine leading economists condemned the Bank of England's Monetary Policy Committee for failing to halt pressure on inflation.
Their warning will horrify homeowners who are already rushing to get fixed-rate mortgages ahead of expected increases to the current interest rate of 5.25 per cent.
The Consumer Price Index - the Government's inflation benchmark - has reached 3.1 per cent.
This is the highest level since the Bank of England gained control of interest rates ten years ago, as food and energy costs continue to rise.
'Inflation is back and it's going to get to 4 per cent by the middle of next year,' said Tim Congdon, a former Treasury worker who was one of the nine who wrote the letter.
'It's not as bad as earlier cycles, but it's nevertheless bad and it's going to end the usual way. Rates will have to go to 6 to 6.5 per cent, may have to reach 7.5 per cent.'
.
The figures came as it emerged that banks and building societies are lending a record £1billion a day in home loans.
First-time buyers desperate to get onto the housing ladder and homeowners keen to secure a fixed-rate deal are behind the surge. When Labour came to power in 1997, total mortgage lending stood at £77billion. Today that figure is handed out in just two months.


Its the late 1980's all over again. FTB's rushing to get a good deal, before it all goes pants. Anyone remember the " MIRAS " boom?

TelBoy

I saw the article this morning. Think it's a bit of an over-reaction to be honest, and a lot of people will really feel the pinch if we get up to 7.5%. Having said that, with King having had to grovel to the Exchequer last week, they won't be shy of a further rate rise or two, starting with another 0.25% on May 10th....

fast bloke

The problem now is that if rates don't take a massive hike inflation will run out of control and the economy will collapse. If rates do take a massive hike the pound will run out of control and the economy will collapse. Personally I would prefer low rates and high inflation, cos either way we are buggered but my mortgage would look a lot better after 10 years of 10% inflation

TelBoy

Mr King, bless him, has stated that the Bank of England are "determined" to meet their inflation target. On a scale of zero to nought, how much do you think he cares about the effect on British manufacturing in acheiving this goal?

fast bloke

Tel - He had to say that in the letter cos fat Gordo would have shouted at him otherwise.

TelBoy

Indeed. Nobody likes a public humiliation though, well not most people

ChefDude

another 25bps?

good for savings

CharlesW

It's all been completely predictable. Gordon has been taxing the profitable private sector to fund his spending spree on the non productive public sector. This was to provide the illusory growth economy. Productivity has been dwindling, but spending, public and indivdual, has been increasing on a flood of cheap credit. As a result there has been a large increase in the money supply, which inevitably leads to inflation a couple of years down the road.

This increase in money supply is well into double digits. So don't be surprised if inflation follows it to the same levels.

And all this has happened in a benign world economy setting. Heaven help us when the recession sets in. Gordon will have to borrow even more money as the tax receipts dwindle. Anyone remember the 70s?

TelBoy

Although of course it won't be Mr Brown's headache, good luck George Osborne...

orbix

70's - I remember the good times on my space hopper are you saying these times are coming back?!!!!

CharlesW

At least you won't need much money to enjoy the good times on your space hopper.

Petem95

Exactly - we have record debts (private and government) at the boom stage in the cycle - quite how one of the biggest booms ever can't be followed by one of the biggest busts ever beats me - I think it's really going to go t1ts up big time.

It appears we may be in the early stages of the collapse now - only time will tell I guess.

Petem95

House price boom is over warns Bank of England boss | News | This is London

Even the BoE saying things are going to be "less nice" over the next 10 years - ie its the other half of the cycle!

Feel sorry for those FTB's who took out crazy mortgages over the last few years - they'll be hit hard.

Leslie

We shall know soon enough when Flash is forced to flog off the rest of our gold reserves at any price when they refuse to lend him any more money. They have already warned him about the way our economy is being run!

Les

TopBanana

We've only got 400 tons left!

kingofturds

iTrader: (1)

To put it scientifically this country is proper fooked . With Chinas economy still growing at an alarming rate if we fall into recession I can see this place ending up a second rate country .

Leslie

As high as that!

Les

TopBanana

Economically, things have been much worse in the past. Sure we'll take a battering for a few years, in which time I expect the electorate begins to see socialism's tax and spend policy for what it really is - a failed experiment. If that happens, we stand a chance of turning around the long-term problems: education and state-funded layabouts.

China is still 20-30 years behind us, but even if they catch up - so what? It doesn't make sense to have huge imbalances in trade.

Prasius

iTrader: (1)

I'd be surprised to see interest rates over 6% in the next couple of years - but I expect to see them reach 5.5% by the end of the year.

Being a non-poperty owner, if I'm honest the interest rates rising is what I'm banking on (literally), raising interest rates will penalise those people who have been in a position where they've had to take out that kind of mortage - and with any luck I'll be the one to profit from the high interest rates and low inflation.

TelBoy

They'll be at 5.50% in 15 days' time - guaranteed

TopBanana

Aye - we won't be in for much of a wait

Petem95

One of the main things keeping inflation down has been goods from China getting cheaper and cheaper, but we seem to have passed the 'lowest' point now, and it looks like some things may start to get more expensive (obviously as the country gets more developed manufacturing costs rise).

Another thing is sterling could crash - its currently very strong - over $2/pound but historically its always then crashed at some point after. That of course means more expensive imports - hence MORE inflation...

How high rates will go is hard to predict, but this time last year many economists were saying rates would stay below 5% for the rest of the decade! How fast things change!

GCollier

I think the markets are expecting 5.75/6.00% by the end of the year with an easing to about 5.50% by end of 2008.