Repossession risk may rise as Bean hints at rate hike

A senior member of the Bank of England's Monetary Policy Committee (MPC) has warned new inflationary pressures could leave the body with no choice…

A senior member of the Bank of England’s Monetary Policy Committee (MPC) has warned new inflationary pressures could leave the body with no choice but to hike the base rate.

Charles Bean said possible rises in commodity prices – such as food and oil – could continue to raise the rate of the Consumer Prices Index, which increased to 3.7 per cent in December 2010, almost twice the target rate of two per cent.

So far the MPC has held back from an increase but Professor Bean warned that a “not nice” rise may have to take place if such upward pressures continue.

This could have a major impact on those trying to pay back their mortgages, with the risk of repossession increasing for those whose personal finances leave them only just managing to spare the money to meet this cost each month.

Debt management measures may help some in such a tight situation, as many people will have other debts as well and freeing up cash from these could help the maintenance of mortgage repayments.

The chances of the base rate rising soon appeared to increase with news that the January MPC meeting saw Martin Weale joining Andrew Sentance in arguing for a change in approach.

While Mr Sentence has been favouring a tightening of monetary policy since last summer, he has been alone in this view until Mr Weale joined him and should Charles Bean follow, it would require just two of the other six to change their view to trigger a rate rise.

Should this occur, it would be the first time the Bank has hiked the cost of borrowing since July 2007.

By Joe White

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