26th January 2011

Inflation soaring

The past few days have seen a plethora of new stories regarding the above expected rise in the rate of inflation.  There is now a feeling that the Bank of England may have to raise base rates sooner rather than later.  I would urge the Bank of England to hold their nerve in respect of interest rates as I think that the inflation pressures have been caused mainly by the rise in raw materials and also the recent rise in VAT.  I think it would be catastrophic for the fragile economy if the Bank of England started to raise interest rates now.

I note with interest that the swap rates have soared over the last few days on the growing possibility that the Bank of England will have to put up base rates.  The knock on effect is that lenders are withdrawing competitive fixed price deals and replacing them with higher rates as the rates on the money market increase.

This is having a very damaging effect on the economy as a whole and on the housing market in particular.

I personally felt that the Bank of England were slow in cutting rates when the economic crisis started and I hope they will not to make matters worse by raising interest rates too early.

Lindsay Darroch
Head of Property Services

 

 

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