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Monday, 30 May 2011

Interest rates may rise soon according to BCC

Could it be the holiday month of August that the Bank of England finally decides to put up interest rates?  The British Chamber of Commerce (BCC) seems to think so.  The "temporary" high inflation seems to be lasting for longer than anticipated.  The BCC said in a report that it believes rates will go up to 0.75 per cent in August, reach 1 per cent by the end of the year and hit 2.75 per cent by the end of 2012. 
This prediction is in fact close to our own poll that showed that most of our readers expected a rate rise to 1% by the end of the year.

The fact that inflation is high is due to one simple fact - Prices around the world for essential items are going up, mainly due to higher commodity prices. What is more the demand for higher wages in the developing world is feeding through as well. 

It is our view that a rise in interest rates will push many businesses over the edge with retail and big ticket purchase businesses being hurt the most.   There are rumours in the City that a big retailer is about to fall into administration.  A few are certainly on the edge!

Inflation over the medium term will be curbed by the subsequent rise in Sterling, following an interest rise, which is one of the current aims of the Bank of England.  However, we mustn't forget that economic stability is another remit of the BOE and lets hope that any rise doesn't upset the economy too much.

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