Forecast of 8% Interest Rates by 2012 “alarmist”
A forecast that UK interest rates will reach eight per cent by 2012 is “alarmist” and makes the unlikely assumption that there will be a double-dip recession followed by a boom and high inflation, the British Chambers of Commerce (BCC) has said.
The forecast was made by Andrew Lilico, chief economist at think-tank the Policy Exchange.
“Once the economy gets growing sustainably, there will be a huge expansion in the money supply, which will lead to inflation. And once inflation rises, interest rates will rise rapidly as well.”
Lilico added that to keep inflation down, interest rate rises to eight per cent are likely by 2012. If interest rates do go up, it could make loans and commercial mortgages even less appealing for small firms in a market that is already sluggish.
However, BCC spokesman, Sam Turvey, pointed out that UK interest rates have remained unchanged at 0.5% for the past 16 months, and that interest rates were unlikely to increase at all until midway through next year.
“The Policy Exchange’s forecasts are very unlikely. They are working on a scenario that anything that can possibly go wrong does.”
“The priority at the moment for both the Monetary Policy Committee, which sets interest rates, and the Government, is to tackle the recession to ensure we don’t slump back into a double dip. We have to keep the momentum of economic recovery going. If they get over concerned about inflation now and raise interest rates, it will hit business confidence and make it harder for businesses to go on and drive the recovery.”
“Small firms should take advantage of the current low interest rates on offer before they are increased.”