Repossession risk may rise as MPC hawk calls for rate rise

A member of the Bank of England's Monetary Policy Committee (MPC) has called for a hike in the base rate as the best means of tackling inflation.

Speaking at the Finance Directors' Strategy Meeting in London last night (June 13th), Martin Weale argued such a move is necessary to get the Consumer Prices Index rate back down to two per cent and will provide the MPC with more policy flexibility.

However, some homeowners who are struggling to pay their mortgages may fear repossession as a result of any increase soon.

Explaining his position, Mr Weale said: "If inflationary pressures subsequently prove more severe than the central part of our forecast suggests, then it will be a help to have started to raise interest rates earlier.

"But if they prove less strong then subsequent increases can be slower than would otherwise be the case. Indeed, if the economy is extremely weak, interest rates can be reduced again."

Should rates rise and inflation drop back sooner as a result, many people would benefit, as the increase in the cost of living that has pushed prices up faster than wages could be curbed and the pressure on household budgets reduced accordingly.

Mr Weale is one of three MPC members who have recently been supporting a base rate hike at meetings of the body, alongside Spencer Dale and Andrew Sentance.

Mr Sentance was the strongest advocate, calling for a 0.5 per cent hike rather than the 0.25 per cent messrs Weale and Dale supported.

However, he has now left the MPC to be replaced by Ben Broadbent, whose position will not become clear until the minutes of the June meeting – his first – are published next week (June 22nd).

By Joe White