‘Blame cost of fuel and food for dearer loans’

RIS­ING RATES: Bank ex­pert re­veals some of the think­ing be­hind the in­fla­tion-led pain suf­fered by bor­row­ers

Kentish Express Ashford & District - - RECRUITMENT & BUSINESS - by Trevor Sturgess

RIS­ING fuel and food prices are the un­der­ly­ing cause of higher in­ter­est rates, ac­cord­ing to a Bank of Eng­land rate­set­ting ex­pert.

Char­lie Bean, the Bank’s chief econ­o­mist, was one of the nine mem­bers of the Mone­tary Pol­icy Com­mit­tee who voted for the re­cent quar­ter per cent hike to 5.5 per cent.

The de­ci­sion fol­lowed a sharp rise in in­fla­tion to 3.1 per cent, forc­ing the Gov­er­nor Mervyn King to write a let­ter of ex­pla­na­tion to Gor­don Brown, Chan­cel­lor of the Ex­che­quer.

Com­men­ta­tors ap­pear united in their view that in­ter­est rates will rise a fur­ther quar­ter per cent in June, with some even pre­dict­ing a half per cent rise.

Mr Bean de­clined to spec­u­late about an­other rate in­crease. “I haven’t ruled it out and I haven’t ruled it in,” he said dur­ing a visit to Chatham His­toric Dock­yard.

In­creases in the cost of oil, do­mes­tic gas and elec­tric­ity had fu­elled re­cent in­creases, Mr Bean said.

“They feed in pretty di­rectly to con­sumer prices. A sig­nif­i­cant chunk of the in­crease was down to that. Global food prices have risen which re­flect the global weather con­di­tions such as drought in Aus­tralia.”

A re­cent re­port sug­gests that re­tail food prices could be head­ing for their big­gest an­nual in­crease in 30 years.

Mr Bean spent two days in Kent and Med­way sound­ing out lo­cal busi­ness peo­ple on the eco­nomic sit­u­a­tion fac­ing them

We will set in­ter­est rates at what­ever level we think ap­pro­pri­ate to achieve the tar­get in the medium term

on the ground. Al­though in­ter­est rates were not high by his­tor­i­cal stan­dards, he said, it was nec­es­sary for the MPC to put a foot on the brake.

Mr Bean ex­pected in­fla­tion to fall quite sharply for the rest of the year and come back close to tar­get.

“We will set in­ter­est rates at what­ever level we think ap­pro­pri­ate to achieve the tar­get in the medium term.

“Ev­ery­thing will de­pend on how the data un­fold over time.”

Ac­cord­ing to min­utes of May’s meet­ing, the MPC de­bated a half per cent rise. “But all nine of us on the com­mit­tee de­cided that 25 ba­sis points was the right move,” he said.

Peo­ple should avoid con­clud­ing that just be­cause there was talk of it last month that an­other in­crease in June was in­evitable

“There does seem to be some­what more un­der­ly­ing in­fla­tion­ary pres­sure than we had ex­pected which is why we’ve been rais­ing in­ter­est rates a bit.”

As for house prices, he was sur­prised by the con­tin­ued buoy­ancy of the mar­ket.

“We didn’t ex­pect it to be quite as strong as it has been.” THE Gov­er­nor of the Bank of Eng­land, Mervyn King, re­ceives more com­plaints when in­ter­est rates go down than when they rise, it has been re­vealed.

Char­lie Bean, the Bank’s chief econ­o­mist, said in Chatham His­toric Dock­yard that the me­dia over­looked the needs of savers, fo­cus­ing too much on the cost of bor­row­ing and higher mort­gage costs.

He said he un­der­stood the pain of peo­ple strug­gling to buy a home but added: “I em­pathise with them, but it’s also right to re­mem­ber there are also a lot of peo­ple with sav­ings, pen­sion­ers and so forth.

“The Gov­er­nor gets more let­ters of com­plaint when we put in­ter­est rates down than when we put them up.

“Press cov­er­age for­gets peo­ple on the other side of the fence who rely on in­ter­est as in­come to sur­vive.”

Peo­ple – savers and bor­row­ers – should al­ways plan ac­cord­ingly for in­ter­est rates rises and falls. “Th­ese sorts of swings and round­abouts are in­evitable, frankly.”

Char­lie Bean, chief econ­o­mist at the Bank of Eng­land and a mem­ber of the Mone­tary Pol­icy Com­mit­tee, right, is pic­tured with Bill Fer­ris, chief ex­ec­u­tive, Chatham His­toric Dock­yard, out­side HMS Cava­lier

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