Interest rates set to rise three times in 2011

News Article - 28 February 2011
Category: Business

The Bank of England Governor, Mervyn King has warned interest rates are likely to increase up to three times in 2011.

Mr King recently explained why inflation was double the target of two per cent last month in a letter to Chancellor George Osborne and admits inflation is likely to rise to five per cent before 2012.

"Three factors can account for the current high level of inflation: the rise in VAT relative to a year ago, the continuing consequences of the fall in sterling in late 2007 and 2008, and recent increases in commodity prices, particularly energy prices," said King.

Economic experts predict that interest rates will increase by 0.25 per cent in May, followed by a rise of the same amount every three months for the next two years.

There are many causes for rising inflation, most notably the continuing increase in the price of oil per barrel and the January increase of VAT. Whilst experts predict higher inflation rates will induce people into spending and holding less cash in the bank, the trio of interest rate increases is likely to create further uncertainty.

The Bank of England base rate remains at a record-low of 0.5 per cent and it is expected that the Bank will be forced to increase the rate people repay their borrowings and earn on their savings. While an increase in interest rates will be of great help to those with savings accounts, it will not be so useful to homeowners and businesses with already-stretched budgets.

Ray Boulger, senior technical manager at John Charcol adds: "The euro problems are also likely to hurt the UK economy and therefore it would not be surprising if Bank Rate remains at 0.5 per cent throughout 2011, although a small rise to 1 per cent in the second half of the year is equally likely."

As a result of continuing rises to inflation businesses require the facility to set and manage budgets for both costs and revenue purposes. Access business accounting software offers flexible day-to-day cash management with its cash book management module providing a full history of receipts and expenses, managing everything from petty cash to bank reconciliation.

For more information, please call Access on0845 345 3300.

Article keywords: Interest rates, Bank of England, Mervyn King, Chancellor George Osborne, inflation, VAT rate rise, commodity prices, Ray Boulger, John Charcol, Access business accounting software, cash book management module

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