Mortgage News
Pru warns quick rate rise would be ‘policy error’
The BoE risks making the UK’s debt problem bigger if it raises rates above 0.5% in the near-term to tackle “one-off” inflationary pressures, says the head of portfolio management at Prudential.
Official figures, due out later today, are expected to show the UK consumer price index (CPI) stayed the same in December, at 3.3% year-on-year.
The retail price index (RPI), which includes mortgage interest payments, is forecast to rise slightly above its current level of 4.7%.
Both figures are significantly higher than the government’s 2% target, and some members of the Bank’s Monetary Policy Committee are calling for a 25bps rise in interest rates to counteract inflationary pressures.
But Martin Brookes, director of Prudential’s Portfolio Management Group and manager of its with-profits life fund, says the Bank’s commitment should be to avoid choking growth.
“Nobody is behaving as if inflation is a sustained problem. It is a one-off blip so the Bank can continue with its foot hard down on the accelerator.
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“If the Bank raises rates that would be a policy error as we need a virtuous up spiral of growth. The UK’s debt problem becomes a bigger problem if we lose growth expectations.”
Elsewhere across Europe, Brookes says there are “significant problems” with the single currency but also the political will to overcome them.
“It is very likely Greece will default but the risk is less likely with Portugal and Ireland. But these are non-core countries and there is such a high level of commitment to the single currency there is a lot of flexibility around keeping it.
“France and Germany are standing 100% behind the euro at the moment. It would need a huge political swing to the right to change this.”
The Office for National Statistics (ONS) will publish UK inflation figures at 9.30am.