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Direction of base rate still unclear

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  • 06/08/2010
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After interest rates were held at 0.5% for the 17th month running, OECD figures suggest rates could rise faster than expected, but commentators continue to predict a short-term hold.

A report from the Organisation for Economic Co-operation and Development (OECD) concluded UK interest rates will have to rise to 3.5% by the end of 2011 if the Bank of England is to keep a lid on high inflation.

The OECD said “Rates would have to start rising this year from the historically low level of 0.5% because inflation expectations are creeping up.”

Inflation is expected to rise, but hasn’t risen yet but higher fuel prices are one of the factors likely to push inflation up, said the OECD.

Andy Cuthbert, managing director of dot financial services said although inflationary pressures have eased it is important to look at the wider picture.

“Overall UK house prices have dipped in Q3 and unemployment has fallen but only by 0.1%, which has been rebalanced by a rise in the number of part-time workers,” he said.

“As mortgage lending remains sluggish, the economy still has some way to go before we see ourselves in sustained recovery and so raising interest rates ahead of planned public spending cuts and tax increases could suppress consumer confidence even further,” he added.

 

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