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EY Item Club Predicts Two Rises in Interest Rates for 2018

Forecasting body, the EY Item Club, have predicted that the Bank of England is likely going to raise interest rates twice this year, and twice next.

Governor of the Bank of England, Mark Carney, stated that it is “likely” rates will rise this year, however, added that increases will be “gradual.” However, the forecasting body believes a ‘tight labour market and firming earning growth’ would possibly cause “hawkish instincts” to be acted upon at the Bank.

The body said that these rises in interest rates would enable the bank to “gradually but steadily normalise monetary policy.” They believe GDP will experience a growth of 1.6% this year, and 1.7% next year.

Presently, UK interest rates are set at 0.5%, however, it is believed by some investors and economists that during the May meeting, the Banks Monetary Policy Committee (MPC) will opt for a 0.25% rise.

Chief Economic Advisor to the EY Item Club, Howard Archer, stated that two rate rises on one year could apply “unnecessary pressure” to consumers, though he did add that fewer homeowners would find themselves affected by a rise in rates, due to the growth of fixed-rate mortgages.

He said, “In addition, the burden of interest payments to the average household was at a record low at the end of 2017, and so consumers are in a relatively healthy position to cope with dearer money.”

Research from Deloitte portrayed an improvement in consumer confidence within the UK, however, stated this was “yet to translate into an overall increase in spending.” The latest quarterly Consumer Tracker Survey from Deloitte said increasing numbers of UK consumers were beginning to feel “more upbeat” when it came to their personal finances.

BBC News. ‘Interest Rates to Rise Twice This Year, Says EY Item Club.’ BBC News Online. (23 April 2018).