355 lines
13 KiB
Plaintext
Executable File
355 lines
13 KiB
Plaintext
Executable File
finance
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economics
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8220862
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-----
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# Homeowners should prepare for interest rates of 5pc, warns Bank of England
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markets chief Paul Fisher
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## Homeowners should start preparing for interest rate rises ahead of a
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return to "normalised" levels of around 5pc, a senior Bank of England official
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has warned.
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![Homeowners should prepare for interest rates of 5pc, warns Bank of England
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markets chief Paul Fisher][1]
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A stark Bank of England research paper indicates that more than 7m homeowners
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are at risk if rates rise. Photo: ALAMY
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[![Philiip Aldrick][2]][3]
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By [Philip Aldrick][4], Economics Editor 6:32AM GMT 23 Dec 2010
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[Comments][5]
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In an interview with The Daily Telegraph, Paul Fisher, the executive director
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of markets and a member of the rate-setting Monetary Policy Committee (MPC),
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said central bank policymakers would like rates to increase as much as tenfold
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from their current historic low of 0.5pc as soon as possible.
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"We hope people are aware that interest rates at some point will go up again
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and that they will head back to a normalised position," he said. Confirming
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that "normalised" rates would be "around" 5pc, he added: "What we need to do
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is to trigger the mindset in people that that's where rates will eventually go
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back to."
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[**Paul Fisher interview - the full transcript**][6]** **
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His comments came as minutes from this month's MPC meeting suggested that
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policymakers are already considering rate rises to stave off the risk of
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soaring inflation. "Most of those members considered that the accumulation of
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news over recent months had probably shifted the balance of risks to inflation
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in the medium term upwards," the minutes noted.
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Market expectations have also jumped in the past month, with rates in two
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years' time now forecast to be 2pc rather than the 1.5pc being predicted in
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November.
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## Related Articles
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* [Economy could contract in 2011, warns BoE's Fisher][7]
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22 Dec 2010
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* [Paul Fisher interview - the full transcript][6]
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22 Dec 2010
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* [Top 10 economics stories of 2010][8]
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23 Dec 2010
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* [We have been warned - interest rates will rise][9]
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23 Dec 2010
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* [Homebuyers should lock into fixed mortgages][10]
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23 Dec 2010
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* [Paul Fisher: The man in charge of QE][11]
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22 Dec 2010
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Mr Fisher's warning follows a stark Bank research paper indicating that more
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than 7m homeowners are at risk of rate rises. Two thirds of mortgage borrowers
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are currently on variable rates, it found, compared with roughly half in a
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typical year. On current wages, if rates were at 5pc, households would be
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spending more of their disposable income on debt interest than at any time in
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the past 20 years, the Bank's analysis showed.
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According to separate Bank data, variable rate homeowners are paying interest
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of 3.28pc on average compared with 4.34pc for those on fixed rates - equating
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to a £1,600 annual saving on a £150,000 mortgage. Household debt in the UK is
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£1.45 trillion, of which £1.2 trillion is mortgage borrowing.
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Mr Fisher stressed that he had no timetable for rate rises, as any decision
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"will be conditioned on economic growth and prospects", and that the Bank
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would proceed cautiously. "We would put rates up, see what the effect is and
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then judge how quickly to go," he said. "I don't think a change of 25 or even
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50 basis points is going to trigger a recession.
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"Obviously the first time we raise base rates that will be a big signal to
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people. But you'd like to think independent financial advisers and others will
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be bringing this home to people when they are arranging their mortgages and
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other borrowings.
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"We have to bear in mind savers have being doing particularly badly while
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borrowers have been benefiting. We can't favour one group over another."
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One MPC member, Andrew Sentance, has been voting for a quarter point rate rise
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since June. Yesterday's minutes for the December meeting noted that he had
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reiterated that "a gradual withdrawal of monetary stimulus by raising Bank
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Rate was justified by recent economic developments".
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Mr Sentance remained the lone voice on the committee calling for a rise, with
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seven members choosing to hold rates and leave unchanged the £200bn of
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quantitative easing (QE) - or money printing, and one member voting for a
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£50bn increase in QE. It was the third consecutive month that the committee
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had been split three ways.
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Economists noted that the MPC's tone had changed dramatically since November.
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Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, said:
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"Reading between the lines it appears that the appetite for further
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quantitative easing has almost totally disappeared and, in this regard, the
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tone has become more hawkish."
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Vicky Redwood, senior UK economist at Capital Economics, added: "There is
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clearly a risk of a token rise in interest rates next year, especially if
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inflation expectations pick up further."
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Despite his rate rise comments, Mr Fisher warned that the recovery could
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suffer a temporary setback next year. "It's not impossible that we would see a
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quarter of negative growth," he said. "The output growth of UK tends not to be
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that volatile quarter to quarter but in this sort of situation when you are
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recovering from a deep recession it is not impossible."
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He added that the biggest risks the UK faces are how external -a fresh crisis
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in the sovereign debt markets, a spike in commodity prices or a collapse in US
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growth.
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[![][12] ][13] **Try the Telegraph's [free mortgage search tool][14]**
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[![][15] ][14]
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[X][16] Share & bookmark
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[What are these?][17]
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* Share: [Share][16] [ ][18] [ ][19]
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[Tweet][20]
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http://www.telegraph.co.uk/finance/economics/8220862/Homeowners-should-
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prepare-for-interest-rates-of-5pc-warns-Bank-of-England-markets-chief-Paul-
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Fisher.html
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Telegraph
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## [Economics][21]
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* ### [UK News »][22]
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* ### [Finance »][23]
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* ### [Personal Finance »][24]
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* ### [Business Latest News »][25]
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* ### [Interest Rates »][26]
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In finance
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[![Riot police use tear gas as protesters throw petrol bombs in Athens][27]
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][28]
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### [Tear gas and petrol bombs][28]
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[![IMF Global Financial Stability Report: the key points][29] ][30]
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### [IMF Stability Report: key points][30]
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[![Indebtedness and Leverage in Selected Advanced Economies (as a percent of
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2010 GDP) ][31] ][32]
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### [Threats to world economy: in charts][32]
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[![Monetary Policy Committee members: the hawks, the doves and the in-
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betweeners][33] ][34]
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### [Interest rate split: how they voted][34]
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[![][35] ][8]
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### [Top 10 economics stories of 2010][8]
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[X][16] Share & bookmark
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Delicious Facebook Google Messenger Reddit Twitter
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Digg Fark LinkedIn Google Buzz StumbleUpon Y! Buzz
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[What are these?][17]
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Share:
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* [ ][16]
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* [ ][18]
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* [ ][19]
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* [Tweet][20]
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* Advertisement
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![][36]
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telegraphuk
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Please enable JavaScript to view the [comments powered by Disqus.][37] [blog
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