UK Interest Rate: Unchanged at 4.75%

UK Interest Rates Forecast: 0.25% increase in November

Interest Rate Rises Look Inevitable

A rise in rates to 5% in November now looks almost certain, with the possibility of a further rise to 5.25% in 2007. That's the opinion of two leading economic think tanks, according to forecasts published this week.

The National Institute of Economic & Social Research believes that in order to bring inflation back down to its target of 2% by the end of 2007, rates will need to rise to 5.25% sooner rather than later.

This outlook was supported by Ernst & Young's ITEM Club, which is the only economic group to use the Treasury's own economic model for its forecasts.

The ITEM Club believes that a rise to 5% in November, probably followed by a further 0.25% rise in 2007 will be necessary to manage inflation successfully, and avoid excessive upwards pressure on wages, which could endanger growth.

ITEM club chief economic advisor , Peter Spencer, also addressed the issue of affordability in the housing market, adding that "If house prices continue to accelerate, interest rates will have to rise further in 2007."