Mortgage misery 'within 18 months'

13 April 2012

THE Chancellor has admitted that the next three months will make or break the economy, Financial Mail has learned.

Gordon Brown believes a strong performance on growth and tax revenues before the New Year will silence his critics and talk of a crisis in the public finances will melt away.

Brown is likely to be cheered on Friday when third-quarter economic growth figures are published. They are expected to show a rise of between 0.6% and 0.7%, putting him on course to meet the minimum two% growth total for 2003.

But on Monday, the independent Item forecasting group will warn that interest rates, now at 3.5%, are likely to reach 5% within the next 18 months. That would mean borrowers with a conventional £80,000 mortgage would see their monthly repayments soar from £445 to £515.

Item, which uses the Treasury's own computer model of the economy, claims: 'The rate of borrowing has now reached an unsustainable level. With the consumer still borrowing and spending at these levels and the world recovery firming, the Monetary Policy Committee will have to consider raising interest rates soon.'

The warning follows comments last week by Bank of England Governor Mervyn King, who said the low interest rates of the past decade were unlikely to be sustained. He said: 'After a decade of unparalleled stability of both growth and inflation, it is time to take stock.

'Will the next ten years be as nice? That is unlikely.'

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