24 October 2006
The UK's fast expanding economy and the continuous rise in house prices are among the reasons being cited by economic forecasting group Ernst & Young, as to why the interest rate must rise again.
Ernst & Young also cited the expanding labour force due to immigration from the EU countries since 2004 as a contributory factor to the booming economy in the UK.
Peter Spencer, chief economic advisor to the Ernst & Young Item club continued: "There has also been a significant rise in the numbers of older and retirement age workers – offsetting a decline in the number of 16-24-year-olds in employment.
"Add to this the steady growth of around three per cent in the value of capital stock – one measure of investment spending – and the UK economy is in line to grow on average between 2.75% and 3% over the next few years."
The core UK interest rate has been set at 4.75 % by the Bank of England since August, but Mr Spencer warned that interest rates may have to rise if current trends continue: "Interest rates need to be raised again in November to stop credit expansion and asset price inflation spilling over into excessive demand and inflation.
"If house prices continue to accelerate, interest rates will have to rise further in 2007," he added.
A rise in interest would benefit members of the public who have savings, but those who are paying mortgages, or have taken out business or secured loans will suffer.
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