BRITAIN’S homeowners must get ready for an interest rate rise, George Osborne has signalled, as he warned that the UK faced a "cocktail" of serious threats from a slowing global economy in 2016.
As he delivered a high-profile economic speech to business leaders in Cardiff, £31 billion was being wiped off the City of London’s share index amid continuing trading turmoil in China and falling oil prices.
The FTSE 100 tumbled by 119.3 points to 5954.1 - a fall of almost two per cent - in the wake of further heavy losses in Asia.
The Chancellor cautioned against a creeping complacency that the economic job had been done in Britain, insisting that the year ahead was not mission accomplished but “mission critical”.
Speaking to BBC Radio 4's Today programme ahead of his speech, Mr Osborne stressed that the decision on when to raise the base interest rate from the historic low of 0.5 per cent, where it has remained since 2009, was a matter for the Bank of England and it would be "wholly inappropriate" for him to seek to influence the timing of such a move.
Yet he made clear that borrowers should be prepared for more expensive lending, describing the US Federal Reserve's rate hike last month as "the beginning of the exit from the very, very low interest rates and ultra-loose monetary policy that was put in place during the crash".
The Chancellor added: "Of course, there will come a point where that happens in Britain; a decision made by our independent central bank...We have got to be ready."
Later, he explained: "One of the biggest monthly bills that many people pay is their mortgage and an important source of income for people is their savings, so it's no wonder that people are starting to talk about what a rise in interest rates might mean for us all.
"Inevitably, with the US Federal Reserve having made their decision to raise rates last month, there is a discussion of how and when we begin to move out of a world of ultra-low rates.”
He stressed: "Let's be clear, high interest rates are a sign of a stronger economy. The job of government is to make sure we've got in place the policies to measure overall levels of indebtedness among families while backing savings too."
In his address to business chiefs, Mr Osborne said Britain was facing a "dangerous cocktail" of instability and threats ranging from the slowdown in China and unrest in the Middle East to volatility in oil prices.
He pointed out how some economists were warning of the danger of "secular stagnation", which sees extended periods of moribund growth caused by a combination of permanently low interest rates, high savings and weak business investment.
In a swipe at Labour and the SNP, the Chancellor claimed the greatest threat to the UK economic recovery was people believing that the job of securing the economy was done and the UK Government could start loosening its purse-strings and scrap planned cuts in spending.
"The biggest risk is that people think that it's 'job done'," he declared. "I want to issue this warning: unless we finish the job of fixing the public finances, to get Britain back into the black by finally spending less than we borrow, all of the progress we have made together could still easily be reversed."
But John McDonnell accused Mr Osborne of having “mixed his own cocktail of rising consumer debt, an over-reliance on borrowing from overseas, with a lack of sustained investment, while failing to support manufacturing, and topping it all off with lighter regulations for the banks”.
The problem was, insisted the Shadow Chancellor, it was the taxpayers who would be left with the hangover.
"Labour has consistently warned George Osborne has to wake up and stop being complacent about the warning signs that the global economy could be slowing but instead he has chosen to play political games with fiscal targets that would simply tie his hands," he added.
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