Legal and General Investment Management’s chief economist has urged the Bank of England to start raising rates, amid fears of an impending consumer debt crisis.
“So many UK customers are on variable rate mortgages – more than in the US,” said Tim Drayson. “I think it’s important to get the process of rate rises underway and normalise it, as the longer you leave it, people will take on more debt…then you’ve got potential for a harder landing.”
“Unsecured credit is starting to get frothy again,” he warned. “There is scope to use macroprudential tools…[but] interest rates is one way of doing this and getting in to all the cracks [of the financial system].”
The Bank of England base rate has remained at 0.5 per cent for more than six years. Doves argue that it should stay this way due to low inflation figures, while hawks say that wage growth and excessive lending need to be addressed.
Drayson said that LGIM is “more hawkish than the market”, although he commented that the UK “is a bit of a wildcard” as its growth depends greatly on whether commodity prices recover or not.
Brent crude is currently lingering at around $43 a barrel, with the $115 of summer 2014 but a distant dream. LGIM attributes the decline to an increase in supply, rather than a slowdown in industrial production in China and the eurozone.