Rates too low, Bank deputy says
UK interest rates are too low and are helping to drive demand for loans and credit, Sir John Gieve, deputy governor of the Bank of England, has said.
Speaking in Guildford, Surrey, Sir John explained why he was one of four rate setters who voted to raise interest rates at the Bank's last meeting.
Analysts are forecasting that the Bank will raise interest rates to 5.75% next week, after holding them in June.
Rates have hit their highest level in six years as inflation has picked up.
'Sharper slowdown'
Some analysts predict that interest rates will hit 6% by the end of the year. One of the main forces behind price growth has been the low cost of loans and debt, which has helped to finance spending by consumers and companies.
"I voted for a further increase earlier this month partly because I was not convinced that current rates would be sufficient to bring credit growth and nominal demand back to their long-term sustainable path," Sir John said.
"I also felt that the impact of moving too slowly on the credibility of the regime and thus the future prospects for the economy was of greater concern, given the robust rate of growth, than an unnecessary slowdown in activity," he added.
Sir John noted that there was a risk that "we may increase interest rates too fast or push them up too far, with an unnecessary loss of growth".
However, he also warned that "we may raise rates too slowly with a cost in higher inflation and potentially higher interest rates and a sharper slowdown in the end".
'Nervous market'
Meanwhile bank Northern Rock said there was "an adverse interest rate environment".
The comments by the UK's eighth-largest lender sparked fears that other banks also would feel a rate squeeze.
Northern Rock's shares were 97 pence lower at 850.5p during morning trading in London.
"Today's effective profit warning, which has battered the share price in an already nervous market, could hardly have come at a worse time," said Richard Hunter of Hargreaves Lansdown Stockbrokers.
Source: bbc.co.uk
Please post any news stories about IVAs here:
http://www.iva.co.uk/forum/default.asp?CAT_ID=5
See my Blog:
http://ivanews.blogs.iva.co.uk
