UK Interest Rate: 5.25%

UK Interest Rates Forecast: Further 0.25% rise expected in May

Most analysts are playing a game of wait-and-see at present, with various business organisations like the British Chambers of Commerce taking advantage of the wait before May's interest rate decision to set out their case for holding interest rates at their present levels.

Interest Rates Failing To Cause Price Drop

March saw UK average house prices rise for the 17th consecutive month – a statistic that may cause some concern to members of the Bank of England's MPC.

Calming the housing market has been one of the underlying aims of the MPC's inflation-busting interest rate rises. The combination of strong demand, tight supply and interest rates which remain historically low has prevented this, however, and house prices have continued to rise in several areas of the UK.

Ed Stansfield, property economist at Capital Economics, believes that the motivating factors that lead people to move house have been underestimated. "People lose sight of the fact that moving home is a very emotional business," he said, commenting that the idea that the interest rate rises seen so far would bring the market to a halt is "overly pessimistic".

David Stubbs, senior economist at RICS still believes that supply and demand will continue to drive the market, and that with continued shortage of supply in many areas, the UK is "a million miles away from falling house prices".

Falling Price Pressure on Manufacturers

The proportion of the UK's manufacturers who are looking to raise their prices has fallen substantially in the last quarter, according to a new survey from the BCC. This found that whereas in the final quarter of 2006, 39 per cent of UK manufacturers were under pressure to raise prices, in the first quarter of 2007, this proportion was only 23 per cent.

This should come as good news to those opposed to any further increase in interest rates, as it might contribute to the beginning of a reduction in inflationary pressures.

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