ECONOMISTS at the Bank of England believe interest rates can rise from their current historic lows without significantly harming Britons’ spending power.
The Bank’s latest quarterly report, published this morning, includes thorough calculations regarding the impact of tighter monetary policy.
“Overall, these results do not imply that increases in interest rates from their current historically low level would have unusually large effects on household spending,” it says.
The Bank calculated that if rates were lifted to two per cent while incomes remained unchanged, 12 per cent of households would need to adjust their finances due to mortgage costs. However, rates are extremely unlikely to rise suddenly while incomes stay completely static – so the Bank assumed a scenario of interest rates reaching two per cent while incomes climb by 10 per cent. Under these circumstances, only 1.3 per cent of households “would need to take some kind of action” with regards to spending due to higher mortgage costs.
Julian Harris, Chris Papadopoullos