Rate rise would cost families £500 a year, economists warn

Teetering: Economists say a 0.5 per cent increase in interest rates could mean families need to find an extra £516 a year to pay their mortgage

Teetering: Economists say a 0.5 per cent increase in interest rates could mean families need to find an extra £516 a year to pay their mortgage

Raising interest rates would leave millions teetering on the brink of financial disaster, leading economists warn today.

The National Institute of Economic and Social Research says a rise from 0.5 per cent to 1 per cent would leave the typical familiy with an extra £516 a year to find for its mortgage repayments. 

In total, such a move would cost  households a staggering £3billion next year alone. An increase to 1.5 per cent would cost them £6billion.

Any rise would put a dangerous dent in  disposable incomes after two years of decline, warned NIESR economist Simon Kirby. ‘Household incomes continue to fall  in real terms and remain vulnerable to a modest interest rate rise,’ he said.

‘Wage growth has failed to keep up with an  elevated rate of inflation and tax increases.’

In what would be a major blow to the Government, NIESR also says that Chancellor George Osborne is on course to fail to meet his deficit reduction targets. 

The Coalition made eliminating the hole in the public finances its founding principle.

Mr Osborne has hailed the Coalition’s austerity measures as crucial in allowing the Bank of England to keep rates at a historic low. 

Crucial: George Osborne has hailed the Coalition's austerity measures as they allowrf the Bank of England to keep rates at a historic low

Crucial: George Osborne has hailed the Coalition's austerity measures as they allowrf the Bank of England to keep rates at a historic low

The Bank’s Monetary Policy Committee is expected to leave rates unchanged once again at 0.5 per cent after its latest meeting ends tomorrow.

The Chancellor argues that Britain is enjoying the interest rates of Germany, though Labour left behind the deficit of Greece.

The think-tank also trimmed its forecasts for economic growth for this year from  1.4 per cent to 1.3 per cent – well below the 1.7 per cent expected by the Treasury.

The economy grew by just 0.2 per cent in the second quarter of the year, having flat-lined for the previous six months.

Despite the sobering assessment, the Treasury remains upbeat. A spokesman said: ‘Not only is the British economy growing, but it is creating jobs, and has created 500,000 in the last year.’

The comments below have not been moderated.

The views expressed in the contents above are those of our users and do not necessarily reflect the views of MailOnline.

We are no longer accepting comments on this article.

Who is this week's top commenter? Find out now