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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 22nd December2006

UK Interest Rate: 5.00%

UK Interest Rates Forecast: Shortening odds of an increase to 5.25% early in 2007

Wage Inflation Exceeds Expectations

Data released by the Office of National Statistics (ONS) this week shows that higher than expected wage settlements and bonuses have fuelled a 4.1 per cent increase in earnings in the three months to October.

The CPI measure of inflation, which excludes house prices, also rose to 2.7 per cent in November - 0.1 per cent higher than forecast. This data has fuelled speculation that the Bank of England will raise interest rates again early in 2007.

The Bank of England's Monetary Policy Committee, the group that sets the bank's base interest rate, have already stated that the January wage settlement data will play a key role in February's interest rate decisions. January is traditionally the main month for wage settlements, with many large unions agreeing wage settlements for the year ahead at this time.

Howard Archer, chief UK economist at Global Insight, remarked that there is a "serious risk that wage settlements will move significantly higher in the 2007 pay rounds." Archer believes that this will make it "highly likely" that the Bank of England will raise interest rates again in the first quarter of 2007.

If the base rate does reach 5.25 per cent, it will be the highest rate for five years.

Fixed Rates Up 14%

The popularity of fixed rate mortgages is growing steadily, according to data released by the Council of Mortgage Lenders (CML) last week. The CML represent about 98% of UK residential lenders, and its members reported a 14 per cent increase in fixed rate mortgages in October over September.

In October, 62 per cent of all new home loans were fixed rate, compared to 59 per cent in September. CML Director General Michael Coogan said that the increase in fixed rate loans suggested that borrowers were making "shrewd borrowing decisions".


 



 

 

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