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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 25 July 2008
| UK Interest Rate: 5.00% UK Interest Rates Forecast: Forecast uncertain, increases possible Inflation Pressure Maintained With Record Retail Sales Record retail sales in May are continuing to add inflationary pressure to the market - already affected by high oil and food prices. Retail sales in May rose by 3.5% - the highest monthly increase since 1986. This news sparked predictable suggestions that the Bank of England will now be more likely to increase interest rates in the near future in order to try and tame inflation. This is not necessarily a foregone conclusion, however. Speaking to the Treasury Select Committee this week, Bank of England governor Mervyn King said that there was "no magic bullet that will protect the UK from higher … prices" and that people needed to "face up to that now". King's comments suggested that he is willing to allow a certain additional amount of above-target inflation before raising interest rates. He said that the "cost of reducing inflation once it stays above target for a period will be a very prolonged and deep slowdown in activity." These comments have been interpreted as meaning that he will seek to delay an increase in interest rates as long as possible, in the hope that inflation can be managed without such drastic action. Slowing Growth Sounds Alarm Bells Slowing economic growth could weaken the case for interest rate rises and raise the possibility of the economy falling into recession as soon as next year. New figures from the Office of National Statistics show that the UK economy only grew by 0.3% in the first quarter of 2008 - lower than the 0.4% that was predicted. Speaking to The Guardian, Jonathan Loynes of Capital Economics said that he believed there was a "very real chance of a technical recession". A recession is defined as two successive quarters of negative economic growth. Such speculation will provide food for thought for the Bank of England MPC and may help to discourage it from increasing interest rates in the near future. |
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