ING: Interest rates to hit 1pc in 2015
Speaking at the annual myhomemove conference in Burton-on-Trent James Knightley said he believed the markets were underestimating how soon the Bank would vote to hike the base rate from its six year low of 0.5%.
Currently markets are pricing in a rise in around 12 months’ time in May 2016 but Knightley said this ignored the improvement in wages seen across Britain this year.
He said: “The Bank of England’s own analysis shows that assuming a 10% growth in wages, if they raise the base rate to 3% just 15% of households wouldn’t be able to afford to pay their bills or buy food.
“That is significantly down from the estimates it made in 2013. Consumer confidence is now back up above the levels we saw at its peak in 2007. With wage growth that means affordability is improving.”
Knightley said despite anticipating a more imminent rise in interest rates he didn’t expect the Bank to be “aggressive”.
He added that the pending in-out referendum on the UK remaining in the European Union due in 2017 was “really limiting the Bank’s desire to raise rates”.
If Britain was to exit the EU, Knightley said foreign investment in the UK would be likely to drop dramatically, hitting UK growth.
He added: “I don’t think we will see Britain leave the EU but there will be increasing uncertainty as we approach 2017.”