Mon, 23 Aug 10
Interest rates could rise to 8% over the next two years to combat inflation, according to think tank The Policy Exchange.
Such an increase would put huge pressure on the housing market, leaving homeowners on standard variable and tracker mortgage rates struggling to meet repayments.
The move would also make mortgage deals even more difficult to secure.
The Policy Exchange’s chief economist Andrew Lilico says that governments globally, including the UK, are set to print more money over the coming years to combat further recession. This will lead to a dramatic increase in inflation, which will need to be combated by increases in interest rates.
He anticipates that an 7.5% increase in interest rates is needed as inflation reaches an estimated 10% in the UK.
A further study by Markit and YouGov has found that household finances are already strained.
Their August survey of 2,000 households found increasing concerns over rising bills and the threat of redundancy. One in three households said their finances had got worse between July and August, compared to 6% who said they were improving.
Around a quarter of those surveyed said they thought their home had lost value during August, compared to one in ten you thought it had increased.
By Joe Lepper
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