Interest rates could rise again

Charles Bean, chief economist at the Bank of England, has warned that it is too early to be sure interest rates will not rise again soon.

11:49 26 November 2004

Charles Bean, chief economist at the Bank of England, has warned that it is too early to be sure interest rates will not rise again soon.

Earlier in the year economists predicted that interest rates would stall at five, or five and a quarter per cent. However, the rapid cooling of the housing market and other economic data has led many people to predict interest rates have stopped climbing.

But Mr Bean, addressing business leaders in Colchester, warned that recent speculation in the media suggesting there would not be another hike in the rate was premature.

The Bank of England's interest rate setting Monetary Policy Committee has upped the rate five times since last November to 4.75 per cent.

Mr Bean said: "It does not make much sense to ask whether interest rates have peaked . . . that will depend on whether or not the various risks . . . materialise."

"Neither I, nor my colleagues on the Monetary Policy Committee know how the data will unfold over the coming months and quarters, and it is the date that will determine where interest rates go next."

The Bank raises or lowers interest rates in an attempt to hold inflation to a target of two per cent.

Increasing interest rates makes borrowing on credit cards, loans and mortgages more expensive while saving becomes more attractive.

When the Bank sees inflation is climbing above its target, rates are typically increased, while if inflation is predicted to dip below target the cost of borrowing is reduced.