Higher interest rates will boost economy

Higher interest rates are needed to help boost the economy, a leading Bank of England economist said yesterday.

 

They will also help keep a lid on inflation, according to Andrew Sentance, a member of the Bank's monetary policy committee.

 

This week's VAT increase will push up inflation, which could force the Bank to raise rates. But this will help the economy by generating better returns for Britain's army of savers who have lost out since rates hit rock bottom in March last year, Mr Sentance said.

 

VAT has now risen to 20 per cent, which will push inflation above 4 per cent, he added.

 

This will make the Bank likely to 'gradually' raise rates from the record low of 0.5 per cent - a blow to millions of borrowers but a boost for savers.