Interest rates to rise 0.5%

Interest rates are set to rise by half a per cent by year end, a senior economist with Ulster Bank has claimed.

Niall Dunne, the bank's financial markets strategist, said business people looking to borrow money needed to seriously consider fixed interest rates.

"For debt managers who wish to secure fixed-term funding at levels near to long-term variable rate averages, time could be of the essence," said Mr Dunne.

He said that while the European Central Bank (ECB) last week left rates unchanged, this did not mean upward pressure was not present in the market.

"There are many other interest rates in the market, such as the rates charged on fixed-term loans of three, five or 10 years duration. The ECB has little control of these longer-term rates, and unfortunately, these rates are starting to rise," he said.

He said events in the United States were key. "Long-term US rates are already rising. Productivity is slowing in the US as labour market conditions tighten.

"Falling unemployment levels are leading to higher wage costs, and inflationary pressures are rising as a result. The weak dollar is also inflationary since it increases the pricing power of US producers, and of course rising oil costs are also driving prices higher. The annual rate of growth in America's core consumer price index has more than doubled over the past year."

He said against that background euro zone policy makers needed to take notice.

"It's no coincidence that the five-year, fixed-term euro rate increased last month. When traders see inflation rise in the US, they reason that rates will soon rise globally, and they start to charge more to lend money, even in areas where overnight rates are on hold, such as the euro zone."