Commenting in the BCC’s Q3 2014 Quarterly International Trade Outlook, John Longworth, director general of the BCC, said: “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. This would also impact on vital business investment.”
The business lobby group has forecast that the first increase in UK interest rates, will happen in the third quarter of 2015, bringing the rate to 0.75%.
The BCC then predicts further increases, in 25 basis point steps, with rates reaching 1.00% in Q4 2015 and 1.75% in Q4 2016.
David Kern (pictured), chief economist at the BCC, said: “Our GDP forecasts are slightly lower than in Q3, but overall the prospects are still positive. Although we expect a slowdown in the pace of expansion, UK growth in the foreseeable future will be stronger than in the eurozone, including in Germany and France.”
However, there were areas of concern requiring low interest rates to prevent the economy stalling.
Kern said: “A deceleration in growth may be unavoidable, given the weaker trends in the global economy, particularly in the eurozone. However, it is important to counter the impact of these downward pressures by maintaining low interest rates and pro-business policies, in order to minimise the risk of the recovery stalling.”
A recent quarterly Bank of England household survey found that , if Bank Base Rate rose 2% today, the vast majority of mortgage borrowers would be able to accommodate the rise.