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Abbey weighs up interest rate increase

Published On 31 January 2007 at 17:43:08

Abbey today weighed up the circumstances and likely impact of January's surprise 0.25 per cent rate increase.

In a statement made by Abby's John Kelly, the bank said that money growth is 'strong' and that housing is 'resilient.'

It also pointed out that unemployment currently stands at 5.5 per cent, and that the increase in jobs available (one per cent) will be offset by immigration and the return to work of older workers.

It added that prolonged economic growth has created new inflationary pressures.

Mr Kelly said of the January rate rise: "In reality this was only a surprise in terms of timing, coming as it did in advance of the quarterly inflation report".

He added: "It was always likely that the Bank would have to move rates higher fairly soon in the new year in response to the pick-up in core inflation seen over recent months."

Pondering the question of whether the rate rises should make consumers wary of rate sensitive stocks, Kelly said: "the answer is no - it is far too late for that."

He continued: "a more credible approach is to look ahead, not to the next rise in rates but … to the timing and circumstances behind the fall in rates that we expect to begin in the second half of this year."

Meanwhile the Chancellor will continue to contend with a headline RPI of 4.4 per cent, the statement said.

 

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