Rate rise may hit Christmas shopping rush

AN HISTORIC interest rate rise this week, the first for a decade, would risk a ‘disproportionate response’ from consumers just weeks before the Christmas rush, experts have warned.

The Bank of England’s Monetary Policy Committee is due to announce its decision on Thursday at 12 noon.

Interest rates have not risen since July 2007. Many economists are pencilling in a 0.25 per cent increase, which would take the base interest rate to 0.5 per cent.

Some believe the committee and Bank of England governor Mark Carney may hold back.

But rising inflation coupled with positive economic data, including a 0.4 per cent rise in GDP revealed last week, are believed by many economists to be forcing the committee towards voting for a rate rise.

Experts say the timing could be painful for retailers.

Robin Knight, a partner at global consulting firm AlixPartners, said: ‘Consumers’ appetite for spending is softening and their “will he, won’t he” view of Mr Carney is having a sizeable impact on that. With Christmas approaching, retailers are entering their golden quarter, and a rise might have a disproportionate impact on consumer confidence.’

He said Carney may be banking on the festive season to smooth out the impact of a rise, but shoppers might ‘close their wallets quite tight, tighter than they perhaps need to’.

Retail expert Richard Hyman said: ‘The consumer economy is far more fragile than seems to be believed. Real incomes remain weak.’