UK Interest Rate: 5.00%

UK Interest Rates Forecast: Likely increase to 5.25% early in 2007

Record Borrowing Strengthens Case for Rate Rise

Record mortgage lending figures and stronger-than-expected retail results are providing further ammunition for analysts who believe another interest rate rise is likely in February.

Mortgage lending rose to a record £33.1 billion in November, and last week the Confederation of British Industry (CBI) reported the strongest pre-Christmas retail figures for two years – against expectations that retailers might have a poor Christmas season.

47 per cent of retailers surveyed by the CBI claimed that sales were up on this time a year ago, and only 22 per cent reported a drop in sales from this time last year. This combination of strong retail figures and record mortgage lending will reinforce the impression of many analysts that previous interest rate rises have had little or no impact on consumer confidence, and may not be sufficiently anti-inflationary to force inflation down to 2%, the Bank of England's target.

Lenders Profiting From Rising Rates

A survey by finance experts Moneyfacts in conjunction with the BBC has shown that average increases in savings interest rates have not kept up with increases in mortgage rates, suggesting that bank and building societies have taken advantage of the recent rate rises to expand their profit margins a little.

Since August, the Bank of England base interest rate has risen by 0.5 per cent. In the same period, variable mortgage rates have risen by an average of 0.51 per cent. However, interest rates paid to savers have only risen by an average of between 0.38 per cent and 0.42 per cent.

Moneyfacts' Lisa Taylor suggested that, "Consumers need to check how much their savings account pays, if it is out of line with best buy rates, perhaps it is time they voted with their feet."