Shock rise urged in UK interest rates

Thursday 27th May 2010
A huge rise in UK interest rates has been urged by the influential Organisation for Economic Co-operation and Development (OECD).

It claims rates must be at least 3.5% by the end of 2011 if the Bank of England is to keep control of high inflation, the Daily Telegraph reports.

UK interest rates have been pegged at a historic low of 0.5% for more than a year.

The OECD's latest Economic Outlook warns: "The reversal of the December 2008 VAT cut and higher fuel prices have contributed to the recent jump in inflation. Notwithstanding the temporary nature of these price developments, the gradual drift up of some measures of inflation expectations implies a need to increase interest rates earlier than previously thought and no later than the last quarter of 2010.

"The projected increase of core inflation to the Bank of England target warrants policy rate to 3.5% by the end of 2011."
 
Inflation is currently 3.7% - almost double the 2% target.

But the Bank of England believes it will fall back below target over the medium term and recently said it had no intention of raising interest rates soon.

Click here to read full report in the Telegraph.

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Mike Jones