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UK Interest Rates Forecasts and Predictions for Home and Property in the UK 23 May 2008
| UK Interest Rate: 5.00% UK Interest Rates Forecast: Cuts highly unlikely in near future Inflation Up, Interest Rates Staying Put This week saw the publication of the Bank of England's quarterly inflation report and the release of the latest inflation figures, both of which contained bad news for anyone hoping for interest rate cuts. The government's preferred CPI measure of inflation is now at 3% - the upper limit allowed without the Governor of the Bank of England having to write an explanatory letter to the Chancellor. The Bank's Quarterly Inflation Report makes it clear that inflation is expected to continue rising and is likely to reach at least 3.5% before it starts to fall again. Higher inflation generally means higher interest rates. A survey by Reuters following publication of these figures found that fewer than 20% of them now expected a rate cut in June. Indeed, interest rate cuts are very unlikely in the near future. At the publication of the Inflation Report, BoE Governor Mervyn King commented that "the nice decade is behind us". Things seem likely to get worse before they get better. What Does That Mean for Mortgage Interest Rates? Mortgage interest rates are influenced by a number of factors - not just the Bank of England rate. The rate at which banks lend to each other for fixed rate mortgages, the LIBOR, is an important factor as well - and the LIBOR remains just below 6% at present, thanks to the credit crunch. The other factor affecting mortgage rates is risk. With house prices falling, there is an increased risk of borrowers suffering from negative equity and getting into arrears. To protect themselves from these risks, lenders are requiring bigger deposits and increasing their mortgage interest rates. While mortgage rates seem to have stabilised recently, there doesn't seem much likelihood of them falling substantially in the next few months. |
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