Boris Johnson has defended chief economic advisor Gerard Lyons after a Labour London Assembly Member accused him of wanting to hike up interest rates.
Appearing before AMs, Dr Lyons said he agreed with the Governor of the Bank of England that interest rates should “go up gradually” but disagreed at the level they should eventually peak at.
He suggested rates should end up at the “high” end of the scale but said “where high is would depend on the economy at that time”.
Questioned by Labour AM Andrew Dismore on where he thought rate levels should be, Dr Lyons replied: “I’d sooner 5-6% than 2-3%”.
In a statement released after the meeting, Mr Dismore said such a level “would obviously be good for savers, it would be disastrous for those who have bought homes on variable mortgages at current low rates.”
He added: “These comments show just how out of touch the Mayor and his team are. If rates reached six per cent there would be a serious risk of a collapse in property values in London.
“Thousands of homeowners are barely able to afford their mortgage repayments at the moment because of the excessive cost of a home in the capital. Even moderate rate rises could force these families to default, or to face the consequences of negative equity.”
Mr Dismore also said he would use next Wednesday’s Mayor’s Question Time session to ask Mr Johnson whether he agreed with his advisor’s views.
Responding to Mr Dismore’s comments, the Mayor’s official spokesman said: “It’s disappointing that Mr Dismore has chosen to mount a nakedly political attack given he knows only too well that the Mayor’s chief economic advisor has very clearly made the point that he believes interest rates should stay low and only increase on a slow and gradual basis.
“Dr Lyons methodology is in line with all the UK’s major business advocacy groups. He believes at the end of the economic cycle, which could typically last many years, that rates eventually may rise to 5 or 6 per cent, but only on a slow and gradual basis and in very small steps.
“That is why Dr Lyons recently advocated a lower rise in rates of just 0.125% rather than 0.25%, something many other economists were advocating. That hardly suggests someone who is out of touch.”
