Interest rate call may have repossession consequences

Britain and other countries should raise their interest rates, an international banking group has argued.

The annual report of the Bank for International Settlements has claimed the loose monetary policy being pursued by central bankers around the world – which includes the persistence of a 0.5 per cent base rate in the UK since March 2009 – is being counterproductive.

It stated: “Addressing overindebtedness, private as well as public, is the key to building a solid foundation for high, balanced real growth and a stable financial system.

“That means both driving up private saving and taking substantial action now to reduce deficits in the countries that were at the core of the crisis.”

The report claimed this is being prevented by low interest rates, which are acting to “delay” the adjustments that both individual households and banks must make.

Were such an argument to prevail, there could be a rise in repossessions, as a higher base rate would see more expensive mortgage payments and make it harder for those struggling to meet them now to do so in the future.

However, the most recent Bank of England Monetary Policy Committee (MPC) meeting saw the body move further away from raising rates.

In recent months three of the nine members have voted for an increase, but one of them – Andrew Sentance – finished his term on the MPC in May and his replacement Ben Broadbent cast his first vote in favour of retaining the current cost of borrowing.

The minutes also suggested there is a risk to economic growth from raising rates and noted even the two remaining supporters of a hike – Spencer Dale and Martin Weale – agreed this danger has increased due to recent weak output data.

By James Francis