| 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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