Interest rates expected to rise by June 2011
Monday, 17 January 2011 12:49 PM
Economists expect interest rates in the UK to start rising again by June 2011 - much earlier than expected - after a sudden jump in inflation.
Speaking to the Daily Telegraph, some of Britain's leading analysts suggested that rising rates could help the country's 38 million savers - many of whom are trying desperately to afford a deposit to buy a house.
An increase in interest rates would end a two-year period of stability, throughout which the Bank of England figure has sat at a record low of 0.5 per cent.
The predicted rise could add significantly to homeowners' mortgage repayments, but offer relief to savers who have endured poor returns since the financial crisis took hold in 2008.
Britain's rate of inflation jumped to 12.5 per cent in December, from 9.2 per cent a month earlier, with the gilt market - where the government raises money by selling bonds - reacting immediately, and yields rising.
These yields are frequently used by financial experts to forecast how interest rates will change in the future.
Stephen Lewis, chief economist at Monument Securities, told the Telegraph: "The market movement suggests that investors are thinking that rates are going to rise before June."
David Page, from Lloyds TSB Corporate Markets, added that the movements "continue to feed the ongoing background concerns that inflation is a growing problem in the UK and it feeds the fear that the Bank of England will react to that".
