Interest rate rise predicted as CBI warns on house prices

May 12, 2014

Policymakers must be ready to act on 'unsustainable house prices', business leaders warn

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BUSINESS leaders have predicted an early rise in interest rates, amid warnings of "unsustainable" house prices in the UK.

The Confederation of British Industry (CBI), which represents tens of thousands of businesses across the country, anticipates a quarter-point rise in interest rates in the first three months of 2015, from 0.5 per cent to 0.75 per cent – six months earlier than it had previously predicted.

The CBI's director-general, John Cridland, said: "We have to remain alert to the risks posed by unsustainable house price inflation.

"Housing has come back under the spotlight as annual house price inflation figures have reached double digits on some measures," Cridland said. "While housing transactions are still running almost 30 per cent below their last peak in 2006, they are picking up steadily".

Property prices are set to increase by 8.2 per cent this year and 5.1 per cent in 2015, which is "fuelling speculation of a bubble", the Daily Telegraph says.

The warning on house prices comes as the "economic backdrop brightens", The Times reports. The CBI has pushed its UK growth forecast for this year up to three per cent from 2.6 per cent, and for 2015 to 2.7 per cent – up from 2.5 per cent.

But the group also warned that in the lead up to next year's election in May, politicians must not jeopardise the rebound with "pre-election soundbite policies", The Independent reports.

Katja Hall, chief policy director at the CBI, said: "Political positioning must not be allowed to stifle investment, whether it's an unrealistic immigration target, unjustified interventions into specific markets, flirting with leaving the EU, delaying vital long-term infrastructure projects or restricting labour market flexibility.

"Pre-election pledges should not deter overseas and home-grown investors and entrepreneurs, nor limit a future government's ability to deliver prosperity in the UK," Hall said.

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