A premature rate increase by the Bank of England could post a significant risk to the British economy, the British Chambers of Commerce has suggested.
This comes in direct contrast to the Bank of England’s prediction earlier this week that the “majority of people” could cope with an interest rate rise of 2%.
The warning came within the release of the BCC’s Q4 Economic Forecast, in which it also downgraded the UK’s predicted GDP growth for this year from 3.2% to 3%.
“Although this updated forecast slightly lowers our growth predictions, it also confirms that Britain will be one of the fastest-growing developed economies as we close out 2014” said John Longworth, Director General of the BCC.
“This is a great achievement, and businesses up and down the country should be congratulated for their hard work and resolve to drive the recovery in the face challenges and uncertainty both at home and abroad.”
“However, our dependence on consumer spending and mortgages means that the UK economy is particularly sensitive to interest rates. Any short-term rate rises could present a huge risk to our economy.”
Research by mortgage giant Halifax this week has also revealed that house prices continued to stagnate in November, growing 8.2%, compared with 8.8% in October.
The results of this research comes in the same week as the biggest overhaul of Stamp Duty since the change to Stamp Duty Land Tax in 2003, something that stands to benefit the vast majority of home buyers.
“The average homeowner will be financially better off under the new structure and the changes should encourage more movement in the housing market as transactional costs will be reduced for many” said Stephen Noakes, of the Halifax.
Worries of a further ‘boom’ in the market will prove unfounded however, according to a leading mortgage broker.
“The new change in Stamp Duty charging will likely cause a small spike in activity, as some 98% of buyers stand to gain from the recent changes” says Steven Clements, senior consultant at Contractor Mortgages Made Easy.
“However, with prices already very high, a prolonged boom is very, very unlikely as the market simply cannot sustain it.”
“It will however mean that prices rise slightly, and in turn mortgage rates begin to creep up. If you haven’t done so already, consideration should be paid to fixing for a period, since rates are unlikely to come back down again once the market settles.”
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
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