Inflation Propaganda Alert: Interest rates set to rise as economy recovers

Interest rates will start to rise sooner than expected after official figures showed the economy growing at its fastest rate for a decade, economists have said.

Andrew Porter and Philip Aldrick

Growth over the past six months reached 2 per cent, the fastest pace of expansion over two consecutive quarters since 2000, according to the Office for National Statistics.

The economy received a further significant boost when Standard & Poor’s, the ratings agency, revised its outlook on Britain from negative to stable and confirmed the country’s AAA credit rating.

The Chancellor welcomed both as a “vote of confidence” in the Coalition’s economic policies in the week following the Comprehensive Spending Review. Economists warned that the good news could be tempered by interest rates rising earlier than expected.

Andrew Sentance, a member of the Bank of England’s monetary policy committee, said he was in favour of lifting interest rates.

“There is a bit of a mismatch between what’s happening with inflation and growth, which we have heard about today, and the level of interest rates,” he said.

“I am in favour of gradually moving interest rates up from their very low level which I think can be done without disrupting business or consumer confidence.”

Interest rates have been at historically low levels since the credit crisis took hold, with the Bank of England keeping rates at 0.5 per cent since March last year. It had been expected there would be little change before the end of next year, but on the back of yesterday’s strong growth figures some traders were predicting two rate rises before then, with a base rate of at least 1 per cent by the end of 2011.

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