By Max Clarke
Members of the UK200Group of independent accountancy and lawyer firms have commented on the CBI’s predictions that interest rates will start to rise again next year, reaching around 2.75 per cent by the end of 2012:
“The problem with the current inflation is that it is not fundamentally the result of spending demand — indeed, people are still not spending but preferring to reduce their personal debt.
“Raising interest rates has the effect of dampening consumer spending with a view to curtailing inflation but it only works firstly if inflation is the direct result of spending and secondly if the increase in interest rates will impact upon consumers. The first of these is not currently the case and with the margins so hugely increased by the lenders, it is doubtful that much in the way of base rate increases will impact on the consumer except as regards mortgages. With mortgages in such short supply and house prices similarly depressed, any increase in rate could have serious downsides.
“Whilst interest rates almost certainly will have to be increased towards the end of 2011, an increase to 2.75 per cent by the end of 2012 I would believe to be too soon. Ultimately base rates of 2.5 per cent to 2.75 per cent are to be expected, i.e. about the same as long term growth and inflation.”
David Ingall, partner, JWPCreers:
“The problem with inflation is twofold. Firstly, once you have it, it is like a cold — it’s difficult to get rid of. Secondly, the actions required to get rid of it are painful in already painful circumstances. Pain on pain. The increase in interest rates will affect people’s mortgage payments and the ability of business to make profits, essential for our recovery. Even net savers will be unhappy as though their interest will improve the value of their savings will be eaten away by inflation.”
Anthony Harris, director, Critchleys:
“I do anticipate interest rate rises next year, and this will probably contribute towards inflation for a period, unless it happens shortly. It will begin to bring an end to what Lord Young has referred to as a time when we ‘have never had it so good’!”