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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 16th February 2007

UK Interest Rate: 5.25%

UK Interest Rates Forecast: Further 0.25% rise possible at some point

Interest Rates Stay On Hold for February

The Bank of England's Monetary Policy Committee have chosen to keep interest rates on hold for February, suggesting that they would like to wait a little longer to see the effects of their three previous rises before deciding on whether to increase rates further.

It had been thought that the Bank might follow-up January's surprise increase with a further rise in February, and many analysts still believe there may be one more interest rate rise to come.

Philip Shaw, Chief Economist at Investec, believes there will be another rise:

"Given the potential upside risks posed by above-trend growth, firmer wage settlements, more 'rogue' inflation numbers and a resumption of housing market strength, we are still pencilling in a rise for the second quarter of the year."

These sentiments were echoed by CBI Chief Economic Advisor Ian McCafferty, who commented that it is "too early to say if interest rates have peaked."

Salary Rises Suggest Strengthen Case For Interest Rate Rise

Despite average pay growth lagging behind the retail price index measure of inflation, pay settlements have been improving over the last three months.

The Voca take-home pay index - which measures salary payments on a three-month moving average – rose from 2.9 per cent in December to 3.3 per cent in January, strengthened particularly by service sector pay, which rose to 4.6 per cent in January (above RPI inflation) from 3.2 per cent in December.

Although the large bonus payments to City financial services workers may have skewed these averages somewhat, continued increases in wage settlements will strengthen the case for a further interest rate rise later this year, as the Bank of England seeks to control and reduce inflation.


 

 

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