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Wednesday, August 04, 2010

Interest Rates May Rise

Despite Mervyn King, Governor of The Bank of England, stating last week that interest rates are likely to stay low for quite sometime, two former colleagues have contradicted him.

Sir John Gieve, an ex-deputy Governor, and Charles Goodhart, a previous member of the Monetary Policy Committee addressed Fathom Financial Consulting's Monetary Policy Forum.

The Telegraph quotes Sir John as saying:

"I am expecting a recovery – when that is strongly established I'd expect rates to start rising faster than the market currently expects. I wouldn't be at all surprised to see interest rates at 2.5% a year from now."

Mr Goodhart was worried about the effects of food price inflation on the overall economy.

"We're going to have subdued growth for five or six quarters but a temporary increase in inflation. What do you do when inflation is still above the upper limit when the economy is looking extremely soggy?"

Were the MPC et al always 100% accurate with their forecasts, then we would not be in the mess that we are in now. Therefore, these predictions should be taken with a large pinch of salt.

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