Interest rate rise could push indebted families over the edge

04/08/2011

Raising interest rates by as little as 0.5 per cent could leave many families on the brink of financial disaster, leading economists have warned.

Currently interest rates sit at 0.5 per cent, but if this was to rise to one per cent it would leave a typical family with an extra £516 a year to find for its mortgage repayments.

The warning comes from The National Institute of Economic and Social Research (NIESR) who also say Chancellor George Osborne is on course to fail to meet his deficit reduction targets.

NIESR economist Simon Kirby told the Daily Mail: “Household incomes continue to fall in real terms and remain vulnerable to a modest interest rate rise.

“Wage growth has failed to keep up with an elevated rate of inflation and tax increases.”

If this rise were to happen it would cost households a staggering £3 billion next year alone. If the interest rate should rise a further 0.5 per cent to a total of 1.5 per cent if would cost them £6 billion.

The think-tank also trimmed its forecasts for economic growth for this year from 1.4 per cent to 1.3 per cent – well below the 1.7 per cent expected by the Treasury.

However, the Treasury remains positive as spokesperson told the paper: “Not only is the British economy growing, but it is creating jobs, and has created 500,000 in the last year.”

The economy grew by just 0.2 per cent in the second quarter of the year, having flat-lined for the previous six months.

The Bank of England’s Monetary Policy Committee (MPC) is expected to announce whether they will keep interest rates at 0.5 or raise them this week.

Tags; Current UK Economy, Housing Debt and Bills, Income Worries and Debt, Budgeting Advice,

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