Rate rise call as inf lation ‘set to surge’

MARK Carney was under mounting pressure to raise interest rates last night after a report warned that inflation will surge towards 4 per cent next year.

The Bank of England Governor has championed ultra-low interest rates for years – even slashing them again in August, despite strong growth in the economy.

The controversial policy has hammered savers, with even Prime Minister Theresa May warning it is having ‘bad effects’.

But a study today warns inflation is returning, placing renewed pressure on Mr Carney to reverse the strategy. According to the National Institute of Economic and Social Research (NIESR), inflation will surge towards 4 per cent next year, as the slide in the pound pushes up the cost of imports.

Such an increase in the cost of living will pile pressure on

‘Could get a lot worse’

family finances as wage growth remains muted and savers suffer from record low interest rates.

But the report also suggests the economy will grow by more than previously expected as the fall in the pound boosts trade.

Campaigners last night urged the Bank, whose Governor this week revealed he will leave in 2019, two years earlier than expected, to ease the pain on savers and raise rates to prevent inflation running out of hand.

Susan Hannums, director of independent advisers SavingsChampion.co.uk, said savers ‘have been the sacrificial lambs’ of recent years.

‘How much more pain can savers take,’ she said. ‘With the threat of rising inflation, which is the saver’s worst enemy, things could get a lot worse before they get better.

‘And the suggestion that rates could be cut further would be the last straw and a disaster for the long-suffering saver.’

Figures from comparison website Moneyfacts show that 403 out of 635 savings accounts already pay less than inflation – meaning millions of prudent families are seeing their nest eggs eroded by rising prices.

Steve Baker, a Conservative member of the Commons Treasury committee, said: ‘Current monetary policy is the biggest threat to our financial system – I am more concerned about that than I am about who is Governor.’

The Bank of England cut rates from 0.5 per cent to a new low of just 0.25 per cent in August and has threatened to cut them again before Christmas.

But the economy has fared far better than the Bank feared following the Brexit vote and grew by 0.5 per cent in the third quarter of the year – raising questions over the decision to cut rates at all.

NIESR predicts that inflation will rise from 1 per cent today to 3.8 per cent by the end of 2017 – making matters even worse.