Interest Rates to Rise

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Anyone who hasn’t factored into their finances that interest rates are going to rise is a complete and utter idiot.

Sentance voted for rates to rise to 0.75 percent from their record low of 0.5 percent, though he backed the MPC’s unanimous vote to keep the stock of quantitative easing purchases steady at 200 billion pounds.

The move puts the former British Airways chief economist on a collision course with Bank Governor Mervyn King, who stressed last week how monetary policy had to take account of fiscal tightening and financial fragility.

Not only was that the latest news but earlier in the month the Shadow Monetary Policy Committee (SMPC) voted by five votes to four to leave Bank Rate unchanged at ½% when the Bank of England’s rate setters announce their decision on Thursday 10th June. This narrow margin is the closest that the SMPC has come to advocating a rate rise for a long time. All four of the dissenters voted that Bank Rate should be raised by ½% to 1%.

Andrew Sentance‘s view is that:

Inflation has been volatile, particularly because of changes in Vat and energy prices. But this is the second significant inflation spike in the past couple of years. This is unusual because we normally expect recessions to push down inflation. Yet since the start of 2008, CPI inflation in the UK has averaged 3% — above the 2% target and more than one percentage point above its average in the pre-recession period of growth.

Ignore it at your peril.