| 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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