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Consumers 'must prepare for interest rate hike'


Shoppers in Corn Market, Belfast

Shoppers in Corn Market, Belfast

Shoppers in Corn Market, Belfast

Dwindling levels of disposable income combined with growth for the wider UK economy mean Northern Ireland's consumers need to be well prepared for a hike in interest rates.

That's according to PwC economist Esmond Birney, who was speaking after the business advisor released its UK Economy Outlook, which revealed the poorest households are being hit hardest by soaring fuel and food prices amid a fall in the real value of wages.

It found the lowest earning 10% of the population have experienced cumulative consumer price inflation of 40% in the decade to the end of 2013. That compares with inflation of 32% for the richest 10% of households, with the difference equivalent to an extra financial burden on the poorest households of around £20 per week – about £1,000 per year.

And Northern Ireland's households seem to have been one of the worst hit regions.

"There is... some evidence that Northern Ireland, Wales and Scotland have been disproportionally impacted by high energy prices and this is reflected in particularly high levels of fuel poverty rates in Northern Ireland where, according to the Northern Ireland Fuel Poverty Estimates, around 42% of households are in fuel poverty.

"That compares to around 29% in Scotland and Wales, whereas fuel poverty is much less prevalent in England where the West Midlands is worst affected, with around 14% of households there in fuel poverty. With little spare income to play with, any interest rate hike could hit households hard.

"With Northern Ireland having the highest level of negative equity amongst the UK regions, households need to bear in mind likely future interest rate rises in any decisions on mortgages or other longer term loans," Mr Birney said.

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He expects interest rates to be kept on hold for now but has pencilled in a gradual hike during the course of 2015 and beyond.

The report said "medial real household incomes" are around 7% below the peak levels seen in 2007.

It said incomes are expected to recover gradually from 2015 but it will be 2019 before they are back above pre-crisis levels, when inflation is taken into consideration.