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Inflation increases lead to rate fears
24 March 2007
Inflation has soared to its highest level for 16 years sparking fears of another rise in interest rates.
The Office for National Statistics revealed that inflation for the Retail Price Index (RPI) had been pushed up from 4.2 per cent to 4.6 per cent in February, with the largest contribution coming from increased housing costs, which are excluded from the Consumer Price Index (CPI), the Bank of England’s official measure of inflation.
There was a large upward effect from mortgage interest payments, with those lenders who had not already done so passing on January’s quarter point increase in the Base Rate.
In addition CPI was up 0.1 per cent from January’s figures, standing at 2.8 per cent in February – above the government’s target of 2 per cent.
With RPI reaching levels unseen since 1991, market commentators admitted the Bank could be forced to raise interest rates again in a bid to curb the UK’s inflation.
Lenders and brokers have voiced concerns that further rate hikes could send over-stretched borrowers over the edge.
Rachel Loynes, adviser at Carterbar Ltd, said: “I don’t see how rates can go a lot higher. If they do, it will cause a lot of repossessions, especially among first-time-buyers, many of whom have over-stretched themselves. Deals that allow first-timers to borrow 125 per cent at five times their income, will not be affordable if interest rates go too high.”