Prepare for 2% interest rates, says Bank of England top policymaker

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Britain could be plunged into recession if the government gives in to excessive union wage demands.

That’s according to the Institute of Economic Affairs, which has warned that large wage increases risk increasing public sector borrowing, leading to higher inflation and faster rises in interest rates.

The IEA’s Len Shackleton said pay rises of 4-5% might be bearable, but if ministers come up with double-digit sums it could become dangerous.

Frances O’Grady, General Secretary of the TUC, said: “An economy can only grow if people keep spending”, adding that the next Prime Minister “must put real wage growth ahead of tax cuts to the rich”.

5 things to start your day

1) Christine Lagarde is preparing a new weapon to save the euro zone from the debt crisis – Pressure is building ahead of crucial ECB meeting next week

2) TSB faces £800million legal battle over claims it charged ‘excessively high’ mortgage rates – About 200 owners sue TSB’s Whistletree brand over overpaid interest claims

3) New business loans to be released as recession looms – Whitehall sources expect the loan to be signed by the Treasury in the coming days

4) UK space industry at tipping point ahead of first satellite launch in half a century – The UK will focus on building smaller, lower cost satellites and developing the capacity of the private sector to launch them into space

5) FTSE 100 engineer to build £60m hydrogen plant in UK to supply carmakers – Johnson Matthey’s hydrogen gigafactory is expected to create hundreds of jobs

What happened overnight

Stocks were higher in Asia this morning after Wall Street capped a week of losses with a broad rally for stocks on Friday.

Hong Kong’s Hang Seng Index climbed 1pc to 20,507.34, while the Shanghai Composite Index gained 0.7pc to 3,251.54.

In Seoul, the Kospi rose 1.4% to 2,363.36. and Australia’s S&P/ASX 500 added 0.5pc to 6,637.50.

coming today

  • Economy: Rightmove House Price Index (UK)
  • Company : No major updates planned.

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