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Early interest rate rise poses ‘huge risk’ to economy

The British Chambers of Commerce has warned hiking interest rates too early poses a “huge risk” to the UK economy. 

The organisation has downgraded its growth forecasts from 3.2 per cent to 3 per cent for this year, from 2.8 per cent to 2.6 per cent next year and from 2. 5 per cent to 2.4 per cent in 2016.

It says the downgrades are a  “warning sign” that there are still economic hurdles to overcome, such as the risk of deflation in the eurozone, slowing growth in emerging markets and political unrest in the Ukraine and the Middle East.

The BBC expects the first increase in interest rates to occur in Q3 2015 to 0.75 per cent.

BCC director general John Longworth says: “Uncertainty in the economy generally affects consumer confidence as does the spending and debt cycle. 

“Our dependence on consumer spending and mortgages means the UK economy is particularly sensitive to interest rates. Any short-term rate rises could present a huge risk to our economy.

“A sustainable, well-balanced economy can only be achieved if there is commitment from all political parties to long-term strategic planning, rather than the political short-termism that has plagued British growth prospects for too long.”

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. Trevor Harrington 10th December 2014 at 10:14 am

    Actually, in some senses, the sooner the first rate rise is announced the better. After all, we all know we are going to have to go there, so perhaps the sooner we start the journey the better.

    Actually, it does feel as though we have been talking about rising interest rates nearly forever, and many do now expect it to happen in 2015. Personally, I think it may well be further out than that, but it is true to say that the physical appearance of an actual interest rate rise will do much to stifle the rather too warm housing market which, in the UK, is the traditional way of turning our economy around – and the current circumstance is no different to previous occasions.

    House builders will no doubt continue to see a reasonably strong “first time buyer” market, but the really big spenders of the middle market who might have been expected to refurbish, or move house, are still sitting with their hands very firmly stuck in their pockets. In fact, outside of London, the housing middle market reminds me very much of the Monty Python parrot sketch.

    To me, interest rates will do what they will do. The real concern to the UK economy is the huge amount of money that will be taken away from the high street (macro economy) due to state pension ages being kicked out to age 66/67 for both men and women, and the averaging down of the state pension to a mere £145 per week.

  2. The only danger of getting an interest rise in 2015 is if enough people are stupid enough to vote Lib Dem or Labour in the general election as the expectation will be tax and spend all over again.
    That will frighten away foreign investment and soon we would be asking for funding as yet another third world country.

    Plus ca change etc.

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