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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 23rd February 2007
| 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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