UK Interest Rate: 5.25%

UK Interest Rates Forecast: Possible further rise to 5.50% later in year

Bank of England Raises Interest Rates To 5.25%

In a surprise move, the Bank of England's Monetary Policy Committee has increased the Bank's base interest rate from 5.00 per cent to 5.25 per cent – the highest rate for five years. The increase was widely expected to take place in February, following publication of the Bank's quarterly inflation report, with no change forecast in January.

The Bank of England cited continued high inflation as the main driver for the increase, with the CPI measure of inflation (which excludes house prices) running at 2.7 per cent - significantly above its target of 2 per cent.

Some analysts also believe that the earlier-than-expected raise was aimed at suppressing wage inflation – the majority of wage settlements are made in January, and with wage inflation running at 3.8 per cent (Oct 2006), the Bank is keen to discourage any further increases in wage growth.

Another Interest Rate Rise – What Will It Cost You?

Inevitably, home owners with variable rate mortgages will be holding their breath to see what impact the latest increase in rates will have on their monthly payments.

The Halifax has published figures showing that payments on a £100,000 mortgage will increase by about £16 for every 0.25 per cent increase in interest rates.

The three interest rate hikes since last August now total 0.75 per cent – meaning that someone with a £100,000 mortgage may now be paying an extra £50 or so a month – a significant amount.

How Far Will Interest Rates Rise?

Although many industry experts believed that the base rate might peak at 5.25 per cent this year, yesterday's increase has caused some to revise their views, with suggestions that a further rate rise could be in the pipeline for the first half of the year, taking rates to 5.50 per cent.