| UK
Interest Rate: 5.25%
UK
Interest Rates Forecast: Further 0.25% rise still likely
in Q1/Q2 2007
Inflation
Drops by 0.3 per cent
Inflation
dropped from 3 per cent to 2.7 per cent in February,
according to the Bank of England's latest quarterly
inflation report.
The
bank's Governor, Mervyn King, suggested that expected
falls of up to 20 per cent in gas and electricity prices
might help reduce inflation still further this year,
but indicated that he was still concerned about medium-term
threats to low inflation, saying that, "just as
3 percent inflation did not mean the end of the world
is nigh, so 2.7 percent does not mean we can ignore
concerns about the inflation ahead."
Further
Interest Rate Rise Still Likely
Although
inflation has dropped somewhat, the Bank of England's
inflation forecasts suggest that hitting
their target of 2% CPI inflation in two years could
still require a further rise in interest rates
to 5.5 per cent.
Strong
overall growth and inward investment
were cited by the bank as factors that could continue
to place upwards pressure on inflation. However, Mervyn
King emphasised that any future interest rate
decisions are not a done deal and were in fact more
uncertain than usual.
Analysts
were also divided over future interest rate decisions,
with many suggesting that the outcome of current wage
negotiations could still have a significant effect on
the likelihood of one further rise in interest rates.
Vicky
Redwood, of Capital Economics said she believes that
"...one more rise in interest
rates in the next couple of months is probably more
likely than not." This sentiment was echoed by
Howard Archer of Global Insight who commented that "…we
still think interest rates will reach
5.50%, but this should prove to be the peak."
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