‘Interest rates to remain on hold’
Policymakers are set to keep interest rates at current levels next week after new evidence that households are struggling to keep up with higher mortgage repayments.
Economists predict the Bank of England (BoE) will hold borrowing costs at 5.75% after five rate hikes in a year, although new figures from the BoE have shown that the amount written off by banks in bad debts has surged to nearly £9 billion.
The Bank of England’s figures showed that lenders wrote off £2.3 billion in the second quarter of the year, up from £2.1 billion in the first three months of 2007.
The evidence of consumers struggling with increased debt comes as banks have also been under pressure in recent stock market turbulence.
Investors are fearful over the banking sector’s exposure to increasing default levels from borrowers in the US sub-prime mortgage market, with concerns that higher default rates could spread to the UK.
Royal Bank of Scotland UK economist Geoffrey Dicks said the Bank of England’s Monetary Policy Committee was likely to keep rates at 5.75% at its meeting next week.
Mr Dicks said: “The MPC is extremely unlikely to raise bank rates against a backdrop of highly volatile and fragile financial markets. But there is little hard evidence at this stage to suggest BoE policy easing is imminent.”
Elsewhere, survey data has shown high street sales growing at their lowest levels since November last year as shoppers begin to rein in spending. Retailers surveyed by the CBI business lobby group are less confident over their ability to raise prices as the bank’s rate hikes hit shoppers.
Sales volumes were at their lowest levels for nine months as a strong showing for booksellers driven by the latest Harry Potter novel was more than offset by falls in clothing sales following the UK’s rain-blighted summer.
Official data from the Office for National Statistics showed better-than- expected retail sales in July, but this was largely driven by discounting from retailers ever-more eager to entice shoppers into stores.