Bank’s alert on rate rise Fears over interest hike this year

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MILLIONS of debt-laden households could face a rate hike “in the coming months”, the Bank of England warned yesterday. Some experts now believe the base rate could double to 0.5% as early as November.

The alert was sounded in notes from the bank’s Monetary Policy Committee, as it kept the rate at 0.25% for another month. Savers would welcome a rise after years of pitiful returns – if banks pass it on. But it would push up borrowing costs for many households with mortgages and personal loans. The warning comes as unsecured debts – including car finance – topped £200billion.

Lib Dem leader Vince Cable said: “Raising rates would push up borrowing costs when many squeezed households are increasingly relying on credit. “With the embarrassing lack of progress in the Brexit negotiations weighing more on businesses every day, the risk of Britain tipping into recession is very real.”

The Bank of England’s aim is to get inflation – now running at 2.9% – back to 2%, and a rate rise is one way to cool spending.

But one of the key causes of the recent rise in inflation is the higher cost of imports.

A rate rise would hit indebted workers whose wages are already lagging behind living costs. But some economists reckon the lifting of the public sector pay cap could push up inflation.

The consultancy Capital Economics revised it forecast of a rate rise from May 2018 to this November. But Howard Archer, chief economic adviser to the EY ITEM Club, still reckons it won’t happen until late 2018.

The pound jumped 1.4% against the dollar and 1.2% against the euro yesterday. The FTSE 100 fell 84 points to 7295 – wiping £21billion off its value – as a stronger pound hits the overseas profits of multinationals based here.

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