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Variable interest rates could jump 600% by 2012

Monday, 20 December 2010 10:54 AM

Interest rates in Britain will need to rise by almost 600 per cent over the next two years to keep up with rocketing inflation, according to the UK's business leaders.

The Confederation of British Industry (CBI) has predicted that the ongoing rise in UK living costs will pressurise the Bank of England into raising interest rates within the coming months.

It suggested that the Bank's base rate – at which it lends to mortgage providers – will climb by more than two percentage points by the end of 2012, with the cost of owning a home expected to rise accordingly.

Such an increase could bring serious financial difficulties to as many as seven million homes nationwide, as owners with variable rate mortgages see their monthly repayments jump by a typical £200.

"In terms of mortgage payments, many households have been benefiting [from the low interest rates], but that will start to turn over the next couple of years," commented Lai Wah Co, head of economic analysis for the CBI.

The group has predicted that the Consumer Prices Index, which the government uses to measure inflation, will rise from its current level of 3.3 per cent, to reach 3.8 per cent within the first three months of 2011.

It expects that interest rates, which have sat at a historic low of 0.5 per cent since March 2009, will begin to increase in the second quarter of next year.
 

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