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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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