UK Interest Rate: 5.25%

UK Interest Rates Forecast: Rate increase in May – 0.25 or 0.5 per cent?

Strong Retail & Manufacturing Figures Increase Rate Pressure

A new survey from the CBI has revealed that Britain's retailers are enjoying some of the best trading conditions for nearly two years.

64 per cent reported increased sales in the first half of April, with only 20 per cent reporting a drop in sales. This gives a positive balance of 44 – the highest such balance since May 2004.

UK manufacturing businesses are also feeling confident, implementing near-record price increases during April – a statistic which is likely to raise inflationary concerns with the Bank of England's Monetary Policy Committee.

This combination of strong business results could increase pressure on the MPC to consider a 0.5 per cent increase in interest rates this month, rather than the widely expected 0.25 per cent.

Howard Archer, Chief UK Economist at Global Insight, commented that, "we now expect interest rates to reach 5.75% in the third quarter."

Leading Think Tank Call For Rate Rise To 5.75pc

A leading economic think tank, NIESR (National Institute of Economic & Social Research) has called for the Bank of England to increase interest rates to 5.75 per cent when the MPC meet on the 10th May.

NIESR believes that such a move is necessary to guard against excessive wage inflation. Wage settlements are often based on the RPI (Retail Price Index) measure of inflation, and this is currently at a 16-year high of 4.8 per cent, resulting in increased wage demands.

NIESR also commented that they thought CPI inflation, the government's preferred measure, would remain above its target 2 per cent level for another year.