Large Interest Rate Rise Expected

Friday, July 30 2004

The Monetary Policy Committee (MPC) should raise interest rates from 4.5% to 5%, says a report issued by the National Institute of Economic and Social Research (NIESR) today, as previous increases fail to rein in house prices and consumer debt reaches unprecedented levels.

The NIESR, Britain?s longest established independent economic research institute, said that current house prices may be up to 30% above their equilibrium underlying value, and that their decline is the main risk to economic growth over the next few years.

The report called the recent raises in interest rates, from 3.5% last November to the current level of 4.5%, a ?rather leisurely tightening of monetary policy?, and said that there is a strong case for the MPC to raise the rate by half a percentage point to 5% when it meets next week.

The report comes on the heels of Nationwide?s house price report showing an increase in house price inflation, as well as figures released today by the Bank of England showing that the household debt has reached a staggering £1 trillion.


Bank of England