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| UK Interest Rate: 5.25% UK Interest Rates Forecast: Increase to 5.5% virtually certain in May "People Have To Get Used To Higher Interest Rates" – NIESR UK house buyers may have to become used to higher interest rates, according to a statement released by NIESR, the National Institute for Economic and Social Research. Following the announcement that the government's preferred CPI measure of inflation had risen over 3 per cent, NIESR director Martin Weale commented that "It is probable that both markets and individuals are taking some time to recognise that the period of very low interest rates which started late in 2001 has come to an end". Weale believes that interest rates are likely to remain around their present level for the foreseeable future, and that house buyers will need to start taking this into account. MPC Minutes Show Strong Support For May Rise Although the Bank of England's Monetary Policy Committee members voted 7-2 against increasing interest rates in April, the minutes from April's meeting strongly suggest that the overall consensus position was that an increase was needed, but should be delayed until after the publication of the next quarterly inflation report. The surprise increase in CPI inflation to 3.1 per cent now makes an increase in interest rates to 5.5 per cent almost inevitable in May. Speculation Over Interest Rate Ceiling Reignited Prior to April's quarterly inflation report, many analysts believed that 5.5 per cent was likely to be the ceiling for the Bank of England's key repo interest rate. Following the news that the CPI measure of inflation has risen to 3.1 per cent, speculation over just how high interest rates might rise has been reignited. Howard Archer, Chief UK Economist at Global Insight, commented that, "There is a markedly increased possibility that interest rates will rise further" [than next month's rise]. This sentiment was echoed by Philip Shaw, chief economist at Investec Securities. Shaw said that "Today's figures mean that a May hike is now even more of a cast-iron certainty than previously. Our forecast that rates will peak at 5.5% is under review." |
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