UK Interest Rate: 5.25%

UK Interest Rates Forecast: Further 0.25% rise still likely in April or May

A mixture of news this week – from the MPC's dove-like behaviour on one hand, to rising inflation on the other. What does it mean for interest rates?
MPC Minutes Suggest Only One Rate Rise To Come?

The minutes from the March meeting of the Bank of England Monetary Policy Committee, published this week, provided some surprises for analysts in the city, who have started to reconsider their interest rate forecasts for the rest of the year.

It appears that the committee voted 8-1 in favour of holding interest rates in March, with one member, Professor David Blanchflower, voting against a rise.

The real surprise was that no one voted in favour of a rise – most city experts had been expecting a 7-2 vote, with seven holds and two votes for an increase to interest rates.

This suggests that the MPC may not be as eager to put up rates again as had been thought, although the latest inflation figure suggest that at least one more rise is likely.

Inflation Up Again – Interest Rates To Follow?

The latest official inflation figures, covering February 2007, reveal that both RPI and CPI inflation have risen. The RPI (Retail Price Index) measure rose to 4.6 per cent in February, its highest level in sixteen years, and 0.4 per cent up on January's rate.

The government-preferred CPI measure, which excludes items such as mortgage interest and Council Tax, also rose from 2.7 per cent to 2.8 per cent. It had been expected to remain unchanged, and these increases will make another increase to interest rates more likely in coming months, as the Bank of England endeavours to drive CPI inflation down towards the government's 2 per cent target.

Mortgage Lenders Reduce Fixed Rates

In a sign that mortgage lenders are not expecting many more interest rate rises, some lenders have begun to reduce the interest rates on their fixed rate mortgage products.

Nick Gardner, director of Chase de Vere Mortgage Management, said that "A few weeks ago the City was factoring in two more rate rises this year, but now the market is only expecting one." This sentiment was echoed by several other lenders.