Mortgage brokers must prepare their clients for early interest rate hikes after the Bank of England said the economy was growing and unemployment falling faster than expected.
Minutes from the Bank of England's Monetary Policy Committee, published yesterday, said recent positive economic data pointed to the slack in the economy being eroded on many fronts.
Growth should strengthen further in the second half of the year, thanks to the housing market revival, shrinking spare capacity in the manufacturing and services sectors, and growing consumer and business confidence.
This could see the economy growing at 0.7% in both the third and fourth quarters, giving total growth of 2.5% across the year, the best figure since 2007.
The MPC also said that unemployment would probably fall at a faster pace than anticipated at the time of the August Inflation Report, when the policy of forward guidance was introduced.
If the sharp housing market recovery continues, and the unemployment rate starts to fall from today's 7.7%, the MPC could come under pressure to raise interest rates sooner than expected, currently mid-2016.
The Bank will consider raising rates when unemployment falls to 7%. But even the anticipation of the first base rate hike to 0.75% could start to push up rates.
The first rate rise could come as early as next year, according to the Centre for Economics and Business Research. Its latest UK economic forecasts released last week also point to stronger growth in the second half of 2013, and it expects annual growth in 2014 to reach 2.7%, the highest since the financial crisis.
It predicts the first base rate rise in 2014, although like the Bank of England, it remains concerned over the sustainability of the long-term recovery.
Howard Archer, chief UK and European economist at IHS Global Insight, said the minutes strengthen the market view that the Bank will start raising interest rates well before its original target date.
"Much will obviously depend on whether the recent sharp pick-up in economic activity is sustained for an extended period, or whether growth eases back.
"We suspect UK growth will moderate following the recent surge in activity although we believe the economy should be able to grow by a decent 2.4% in 2014."
This could spell bad news for the estimated 30,000 borrowers who would fall into arrears if base rates are raised by just 0.5%.
The MPC minutes also showed members voted unanimously to hold quantitative easing at £375 billion and keep interest rates at the record-low rate of 0.5%.
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