Afternoon:
9°c
Interest rates will surge to 6.5% by 2015, Barclays says
4 Feb 2010Interest rates will soar over the next five years despite feeble economic growth and rising unemployment, leading economists warned today.
A report by Barclays said rates will rise to 3.5% by the time of the London Olympics in 2012 and to 6.5% in 2015 to keep inflation under control.
The dramatic rise in borrowing costs 12 times higher than the present level of 0.5% will add hundreds of pounds to monthly mortgage bills.
It could be financially devastating for thousands of housebuyers entering the market now in the hope that rates will stay low for years.
Interest rates have not been at 6% since January 2001.
The report, by Michael Dicks at Barclays Wealth and Simon Hayes and Barclays Capital, painted a bleak picture of the UK despite the recession finally drawing to a close at the end of last year.
Hayes said: The prospects for a strong recovery look to be rather poor. More likely, we suspect, the UK will manage to achieve a fairly feeble pick-up in activity, continuing to underperform most other advanced countries.
Barclays warned that unemployment will start rising again from the current level of 7.8% or nearly 2.5 million.
It forecast the jobless rate to hit 8.3% this year and carry on rising to 9.8% in 2014 before reaching a plateau. Hayes said there was a one in four chance it would top 10% or more than three million people.
The report also forecast economic growth of 1.8% this year and 2.3% in 2011 before falling back to 1.4% in 2012.
That compares with Chancellor Alistair Darling's forecast of 1.25% growth this year followed by 3.5% in 2011 and 2012.
I always thought that was a bit ambitious, said Hayes.
Barclays said the UK suffered more than rival developed countries in the global downturn.
The recession in Britain lasted for a record six quarters longer than any other country in the G20 and was deeper than anywhere else in the G7.
Dicks and Hayes blamed the UK's woes on booming house prices and the vulnerability of the financial sector. They said: The recent performance of the UK economy has been rather alarming. The UK has suffered the largest shortfall in activity relative to its pre-crisis trend of any G7 economy, and has been the slowest of the G20 economies to emerge from recession.
Reader views (17)
This guy works for barclays,what hope is there if this guy is actually employed
- paul, london, 19/10/2010 18:40
Report abuse
I'm soooo glad I read this! The banks have offered us a mortgage which whendoing the calculations would cripple us when rates go up. I worry so much for people in my same position who don't have sensible daddy on the phone like I do telling me the reality is that the bank wants you to take out a loan which is too big and therefore cause you to borrow more money from them! I shall now be looking for properties a lot less in value than the bank had me looking for before.
- Jemima, Jersey, 08/04/2010 16:29
Report abuse
Barclays are right interest rates will go up. There is a shortage of long term savings, and those who have perhaps £10.000 invested at 3% now get £6 a week, Before Tax. Its a joke
- Ann Other View, Lake District, 07/02/2010 09:05
Report abuse
Quantative easing is a financier's fancy way of saying that we are falsifying the real cost of debt and credit. The prudent have to payout for the proligate. Maybe if interest rates were 10 times what they are now (say 5%) folk would appreciate the pain that living beyond your means causes. You watch - no lessons will be learned from this financial debacle
- John Coker, Leighton Buzzard, 05/02/2010 21:20
Report abuse
Thanks to Brown, im enjoying a lower mortgage for months now - and so are alot of borrowers.
Analysts have NEVER EVER got it right on rate predictions.
GOOD TIP 1: Fix your mortgage now if you are worried.
GOOD TIP 2 : Play the lotto every week.
- Mortgagebroker N3, London, England, 05/02/2010 17:16
Report abuse
The world is not as basic as a single supply and demand graph. Looks like some of you will be the wrong side of higher interest rates soon.
- Abominable Snow Man, London, 05/02/2010 12:35
Report abuse
This news merely underlines the fact that we must eject Brown and his crew of halfwits, chancers and charlatans at the earliest opportunity.
- Ted, London, 05/02/2010 08:10
Report abuse
I second that Chris. These people are crystal ball gazing and as capable of predicting what will happen in 2015 as Mystic Meg is of predicting the Euro lotto numbers.
- P, London, England, 04/02/2010 19:54
Report abuse
Not one of these enlightened economists saw the 'crash' coming in 2007/08...but now they've developed a unique gift to see a 5 WHOLE years into the future...miraculous.
- Chicken Little, Earls Field, 04/02/2010 18:51
Report abuse
Remember 1980,when the intrestrate was 17%, rollon the next Conservative Government?
- Joe, London, 04/02/2010 18:11
Report abuse
Hmm, unemployment to keep on increasing as well as inflation. Inflation is a general increase in prices rather than say gas or oil price increases. Given that the employed have been willing to take paycuts to stay in their jobs and certainly no pay rises, do they seriously think any price rises won't be met by falls in demand. Oh yes and the burden of higher taxes over that period will add to that effect.
- Tom Jones, London, 04/02/2010 18:06
Report abuse
BIG DEAL ITS ONLY 5%.
THE RECESSION IN THE 80s IT WENT UP TO 15%.
Besides is there anyone out there who believes what a banker thinks.
- Mr S.Port, London, 04/02/2010 17:39
Report abuse
Brian G, the savers will *not* necessarily get a better return.
the real interest rate is a function of inflation, not gross rates. subtracting the higher inflation (which is fundamental to the predictions of higher rates) means that savers are unlikely to be any better off at all.
- Scotty, London, 04/02/2010 16:40
Report abuse
At least the savers will get a better return! Brown ought to be forced to clear up his own mess. Talk about getting rid of boom and bust under NuLabour. All we have to look forward to is bust. The conservatives were right all along - we should have tackled our mountain of debt much earlier. Heaven knows what state this country is going to be in, in 5 years time.
- Brian G, Norfolk Gorleston, 04/02/2010 15:28
Report abuse
Are we really expected to believe economist predictions, especially when produced by a bank....they didn't exactly forecast the recession that we are in!
- Chris, Sussex, 04/02/2010 15:28
Report abuse
And wait for the riots and unrest that will follow
- Paul Lloyd, England ,Leigh on Sea, 04/02/2010 14:08
Report abuse
That will be me on the street then. Anyone got a spare cardboard box?
- Mike, London, 04/02/2010 14:06
Report abuse
