UK Interest Rate: 5.00%

UK Interest Rates Forecast: Almost certain to rise to 5.25% in February

Booming Service Sector Points to Rate Rise

Britain's service sector companies are booming, according to figures recently released by the Chartered Institute of Purchasing and Supply (CIPS). The figures reveal that the service sector, which includes hotels, restaurants and financial service companies, is enjoying its highest levels of activity and growth for nearly 10 years – since Labour came to power in 1997.

The rate of job creation by the sector is also the fastest since August 1997, raising concerns over inflationary pressures on wages, as companies compete for the best staff. The service sector makes up two-thirds of the economy and has a significant influence on growth rates.

Along with the continued strength of the housing market, these latest figures suggest that a rise in the Bank of England's base interest rate in February is now more likely than ever, as the Bank's Monetary Policy Committee seek to bring inflation levels down.

Rates to Rise to 5.25 per cent in February

Experts are predicting that the Bank of England's Monetary Policy Committee will leave interest rates unchanged in January but will prepare the ground for a rise in the base rate to 5.25 per cent in February.

Howard Archer, chief economist at Global Insight, noted that "There is undeniably a strong possibility that the Bank of England will lift interest rates to 5.25 per cent in the first quarter as a precautionary measure."

Although most economists agree on the likelihood of a rise, some believe that the Bank may be able to drop interest rates again later in the year. Ed Stanfield of Capital Economics commented that "There may be a chance that in the last quarter of 2007 that rates will begin to come down".

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