Interest Rates On Loans Need To Remain Low
We reported yesterday (Wednesday 20th January) on how the rate of inflation in the UK had suddenly risen during the month of December to reach a level of 2.9 per cent, which is well above the Government’s target figure of just 2 per cent.
This in turn has led to concerns and speculation that the base rate of interest for loans and savings may also have to be increased to combat the effects of increasing inflation, with the possibility that interest rates could go up within the next couple of months, thereby increasing the monthly cost for anyone with a variable rate or tracker rate home owner loan or mortgage.
Although Andrew Sentence of the Bank of England’s Monetary Policy Committee (MPC) has previously suggested that interest rates on loans would have to be increased if inflation were to rise as quickly as it has done over the last month, many financial industry and economics experts have commented on the fact that increasing interest rates would have very little effect on the rate of inflation at present and could actually do more harm than good, driving the UK into a further recession.
The figures for the last three months of last year, showed that the UK economy contracted by 0.2 per cent, meaning that the country is still in recession, but many experts are predicting that this figure will be showing growth for the first quarter of this year. However, it has been argued that increasing interest rates too soon could cause a “double dip” recession as people come to terms with having to find more money every month in order to maintain the repayments on their home owner loans and therefore loan interest rates should remain low for as long as possible, until we see more positive signs of economic recovery.
