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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 11 April 2008

UK Interest Rate: 5.25%

UK Interest Rates Forecast: City divided over timing of next cut - April or May?

King Drops Hints on April Cut

The Governor of the Bank of England, Mervyn King, has made comments that suggest his attitude towards an April cut in interest rates may be softening slightly.

Speaking at the Bank of Israel in Jerusalem, King said that "even though some slowdown in the growth rate of economic activity is likely to be necessary to ensure that inflation returns to the target, we cannot allow the economy to slow too sharply".

These comments were interpreted to mean that Kind may consider a further small cut in interest rates desirable in order to prevent the economy slowing too fast - and creating the risk of inflation undershooting its 2% target.

City analysts are expecting a further 0.25% cut before June, but are currently divided over the likelihood of it being in April or May.

Base Rate Falls, Mortage Rates Carry On Up

Whatever the outcome of next Thursday's Bank of England Monetary Policy Committee meeting, it seems unlikely to bring much interest rate relief to the UK's mortgage borrowers.

Mortgage rates have continued to rise despite falls in the base rate. The reason for this is the growing 'spread' between the base rate and the LIBOR - the interest rate at which banks borrow from each other.

The term 'spread' refers to the difference between two rates - at present, the Bank Base Rate is 5.25%, but the LIBOR (London Interbank Offered Rate) is 6%, giving a spread of 0.75% (6 - 5.25).

Such a high spread is unusual and a sign of the ongoing lack of confidence the UK's banks and building societies have about credit risk. This credit crunch seems unlikely to go away any time soon - so even if the MPC cuts interest rates next week, it won't make any difference to most of the mortgage deals currently on the market.

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Please note, this information is NOT necessarily RELEVANT in Scotland


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