| UK
Interest Rate: 5.75%
UK
Interest Rates Forecast: Increase to 6% likely in the
autumn
Bank
of England Suggests One More Rise
The
Bank of England's eagerly-awaited Quarterly Inflation
Report was published this week. The report indicates
what was widely expected; that rates will need to rise
one more time (to 6%) in order to bring inflation down
to close to its target 2% by the end of next year.
A
further increase to 6% has been priced in by the markets
for some time and is expected by most analysts - a Reuters
poll of economic analysts before the Bank's report was
published found that 65% of them expected interest
rates to be at 6% before the end of 2007.
Roger
Bootle, economic adviser to accountants Deloitte, also
supported this school of thought, saying that the "MPC’s
work is not yet done".
Is
Now A Poor Time for Fixed Rates?
While
rising interest rates have caused many
people have hastened to switch their mortgages onto
fixed rate policies over the last year, the time for
fixing may now have passed.
Most
analysts believe that interest rates are very close
to their peak - within 0.5% of the maximum they will
reach.
If
these forecasts are correct, choosing a discounted variable
rate or tracker mortgage could work out cheaper than
taking the fixed rate route. The reason for this is
that fixed rate mortgages generally have slightly higher
interest rates - to compensate for their fixed nature.
If
interest rates don't go up, then the
lower rates offered by discounted and tracker mortgages
look cheaper - and if rates go down, people who fixed
their rates when interest rates were
highest could end up paying considerably more each month
than necessary.
In
return for this extra cost, of course, they get the
security of knowing their payment is fixed - no matter
what happens.
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