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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 27 June 2007
| UK Interest Rate: 5.00% UK Interest Rates Forecast: Markets expecting rises, analysts expecting a cut New Figures Show Inflation Still Strong New figures published on Monday by the Office of National Statistics show that inflation still has a firm grip on the economy and have given rise to suggestions that the Bank of England will actually increase interest rates later this year, rather than cutting them as previously expected. Finished goods prices from British factories rose by 1.6% in May, bringing the annual rate to 8.9%. This rise reflects rapidly rising input (raw material and energy) costs and is significantly higher than the forecast rate of 8%. The higher than expected figures led to a sudden rise in money market interest rates, with the 2-year swap rate - one of the key rates used to price fixed-rate mortgages - surging by a massive 0.3%. The continuing inflationary pressure led some observers to suggest that the Bank of England will no longer be able to cut the bank rate later this year and that they might have to increase it instead. However, this is far from a foregone conclusion as the growing economic slowdown might already be enough to tame inflation - in which case increasing rates could trigger a full-blown recession. Jonathan Loynes, chief European economist at Capital Economics, told the Mail on Sunday that: "The markets may well be right in expecting the next move in interest rates to be up. But they have not yet grasped the likely consequences of this for the economy." What Does It All Mean for Mortgage Rates? Fixed mortgage rates have already been rising over the last couple of weeks, thanks to previous increases in the money market swap rates used to secure funds for fixed rate mortgages. Continued swap rate rises will result in further increases to fixed rate costs and probably trackers too. It remains to be seen how mortgage lenders will adjust their variable rates as these are not tied to swap rates in the same way. |
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