When Will UK Interest Rates Rise as Speculation Increases

Economists say that interest rate rises and other tools to deter house price rises are increasingly likely to be used in the short term, possibly as soon as next month.

Some 68 percent of respondents to monthly survey of economists by financial wire service Bloomberg have suggested that new so-called ‘macro-prudential tools’ could be used by the Bank of England to stop what it sees as excessive house price rises.

This is finance-world jargon for the ability of the BoE to allow its officials to stipulate higher interest rates for lenders to apply in the new Mortgage Market Review affordability tests.

The tests come into effect at the end of April and the BoE’s Financial Policy Committee, which meets in June, could in theory trigger the higher rates specifically for some borrowers.

Concern has been fuelled by the latest house price figures from the Office for National Statistics which shows the average cost of a home increased by 9.1 per cent during the year to the end of February.

This is the highest year-on-year growth since June 2010, pushing the UK-wide average up to £253,000 – a £20,000 increase compared with the same month of 2013. London hogged the limelight again with prices 17.7 per cent higher than a year earlier.

Not every economist is pessimistic, however.

Ernst & Young’s Item Club says it is “sceptical about the likelihood of an unsustainable house-price boom” despite the fact that “market indicators point to further acceleration in activity and prices this year.”

Its latest report, out this week, says that caution on the part of lenders, the new MMR rules and the BoE’s macro-prudential tool “should deter rapid credit growth, the precursor to past episodes of excessive rises in property values.”