Interest rate rise 'would cut UK growth'
Nov 07, 2006
UK economic growth is likely to fall to 2.3 per cent next year if the Bank of England opts for a quarter per cent rise in interest rates, as expected this week, a report has warned.
The latest economic outlook report published by Oxford Economic Forecasting (OEF) claims that a decision by the bank's monetary policy committee (MPC) to raise the cost of borrowing to five per cent, combined with the effect of a slowdown in the US economy, would put downward pressure on business investment and consumer spending in the UK.
OEF said that the UK had become accustomed to interest rates being below five per cent, which has pushed households to take on significant amounts of debt. He said with a further interest rate rise looming, growth looks set to slow down as people mull over their financial situations.
However, while the OEF predicts that the rate of UK economic growth will fall from its current level of 2.6 per cent if policymakers do decide to raise the base rate of borrowing in order to curb inflation, it has stressed that such a move could stimulate a pick-up in growth in 2008 and 2009 by giving the MPC the scope to introduce rate cuts in the second half of next year, if levels of inflation drop.
Meanwhile, a motoring industry association has warned that a rise in interest rates would cause concern amongst car dealers.
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