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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 26th November 2006

UK Interest Rate: 5.00%

UK Interest Rates Forecast: No changes for 3-6 months

Lenders Increase Rates Following Bank of England Hike

At least two major high street lenders have already increased their standard variable rates of interest following the Bank of England's base rate increase last week. Halifax increased its standard variable rate to 7%, and Nationwide increased its basic rate to 6.49%. Other lenders look set to follow over the next few weeks.

Bank of England Reduces Inflation Forecast

In a sign that further increases to the base interest rate may not be necessary, the Bank of England released updated inflation forecasts this week which suggest that maintaining interest rates at 5% should be sufficient to cause the Consumer Price Index (CPI), one of two key measures of inflation, to gradually fall back to its 2% target.

Bank of England Governor, Mervyn King, commented that the outlook was "broadly balanced" and that the two remaining risks to inflation were wage growth and increased profit margins [for oil companies] resulting from the recent falls in oil prices not being fully passed on to consumers.

This forecast was supported by new inflation figures released by National Statistics which showed that despite forecasts, the CPI measure of inflation had remained at 2.4% from September to October. It was expected to rise to 2.6% on the back of increases in university tuition fees, but falling petrol prices prevented this.

Banks Profit from .99 Syndrome

It seems that just like supermarkets, financial institutions have been profiting from their customers tendency to round prices down, not up.

New research published by Moneyfacts.co.uk showed that for many years, banks and building societies have been charging higher borrowing rates than many lenders recognise. Rather like supermarkets pricing goods at £1.99 instead of £2, lenders will set interest rates at 5.95%, rather than 6%, for example, relying on peoples' tendency to focus on the part of the number before the decimal place.



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