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GDP surge threatens early rate hike

Official figures showing GDP rose a robust 0.7% in the second quarter will add to pressure on the Bank of England to hike base rates.

This is a growing concern as separate figures show that Britons now owe a total £1 trillion for the first time.

Overall household debts were found to have grown to £1.04 trillion, with one in five homes describing money owed as a heavy burden, according to the Office for National Statistics.


Analysts say homeowners should brace themselves for a series of interest rate hikes next year.

Nick Dixon, investment director at Aegon UK, said the welcome rise in second quarter GDP points to healthy full-year GDP growth of between 2.5% and 3%.

“This will intensify hawkish calls on the Bank of England to normalise monetary policy sooner rather than later, and consumers should now be braced for a steady stream of rate rises, starting in early 2016.”

Azad Zangana, senior European economist at Schroder, said with wages rising and external concerns such as Greece subsiding, the MPC will be seriously considering whether it is time to start raising interest rates.

"We expect the Bank to hold fire until early next year, as inflation is currently too low. 

"However, once the Bank starts to hike rates, we expect them to move at a faster pace than markets are currently pricing."

Calum Bennie, savings expert at Scottish Friendly, said borrowers should be prepared for a moderate return of inflation.

“Providing this trend continues, the Bank of England will be well placed to start to raise interest rates from their historic low.

“A rate rise won’t happen quickly, but for homeowners in particular, this is a blessing as it gives them time to prepare for the inevitable increase in the cost of borrowing.”


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