City dismisses fears of 8pc rates as rubbish

August 24, 2010, 01:06am

ECONOMISTS yesterday rebuffed suggestions by an influential thinktank that interest rates could soar to eight per cent within two years, describing the claim as “complete rubbish”.

Andrew Lilico of the Policy Exchange grabbed headlines by predicting a double-dip recession followed by a swift recovery. Lilico said monetary supply would surge in the upturn, fuelling inflation and forcing the Bank of England (BoE) to hike its central rate to eight per cent.

His view is at odds with the consensus of City analysts, which sees interest rates rising to around two per cent by the end of next year and 3.5 per cent by the end of 2012.

Jamie Dannhauser of Lombard Street Research said there was no way the BoE would allow money supply to expand at the rate necessary to bring a return to 1990s-style inflation. “It’s a complete load of rubbish,” he said. “It would involve the Bank being completely asleep at the wheel.”

George Buckley of Deutsche Bank predicted a gradual tightening of 25 basis points per quarter from the start of next year. “If you get something like the Policy Exchange is suggesting you’re likely to see the consumer weaken very rapidly as debt interest payments rise,” he said.

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