Interest rates may have to rise by more than the expected 25 basis points next month if the Bank of England is to continue sending the correct messages to the market that it is on top of inflationary pressures, says Simon Rubinsohn, chief economist for stockbroker Gerrard.
The threat of a hike greater than 0.25% comes after the Office for National Statistics published numbers showing UK GDP grew 0.9% in the second quarter, taking year-on-year growth to 3.7%.
That is the highest rate of GDP growth since the third quarter of 2000, and, coming after the Bank warned in minutes from the last meeting of the Monetary Policy Committee that “there is little spare capacity in the economy”, it looks as if the MPC’s ‘gradualist’ approach may have to be abandoned, Rubinsohn says.
” Indeed, the risk is now growing that the Bank will be forced to abandon its gradualist approach to cooling the economy in favour of something altogether more assertive,” he says.
Another issue is the fast growing net wealth of households around the country, which Gerrard estimates is increasing faster than official figures suggest.
From about £5.45bn at the end of December last year, this net wealth is estimated at £5.65bn currently by Gerrard, supporting continued high levels of household spending, and helping offset the gradual increase in interest rates since last November.IFAonline
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