| UK
Interest Rate: 5.00%
UK
Interest Rates Forecast: Likely to rise in February/March
2007
Bank
of England Base Rate Increased to 5.00%
On
Thursday the Bank of England's Monetary Policy Committee
(MPC) increased the Bank's base interest rate
to 5%, in a widely-predicted move intended
to dampen inflation and reduce upwards pressure on wages
and house prices.
Inflation
presently stands at 2.4%, and the MPC were concerned
that recent falls in oil prices had not led to a greater
reduction in inflation levels, as has been the case
elsewhere in Europe. This suggests that UK companies
have used the slack to increase prices in other areas.
In
addition to continued strong growth in the housing
market, utility bills have also risen sharply
this year with an average increase of 27% for electricity
and 40% for gas. Upwards pressure on wages has continued
as well, with Ford recently agreeing an above-inflation
4.25% pay deal for its UK employees.
A
Mixed Picture
Despite
overall strong growth in the economy, the MPC described
consumer spending as only "moderate" and noted
disappointing manufacturing performance and a fall in
exports over the summer. Some commentators are concerned
that interest rate hikes will hurt
manufacturing industry and lead to potential job losses.
Interest
Rate Predictions
No
clear consensus has yet emerged on future interest
rate changes. While many economists expect
a further 0.25% rise in February or March next year,
this is by no means certain and will in part depend
on the Bank of England report on inflation, due out
this week.
Indeed,
some economists believe a return to a rate of 4.75%
will be necessary to maintain economic health –
David Millar, Head of Bond Strategy at Scottish Widows
Investment Partnership, says that markets have already
factored in this week's widely-predicted rise, and believes
no further rate increases
will be necessary in 2007.
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