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UK Interest Rates Forecasts and Predictions for Home and Property in the UK at 5th January 2007
| UK Interest Rate: 5.00% UK Interest Rates Forecast: Strong likelihood of increase to 5.25% in Q1 2007 Interest Rates Likely To Peak at 5.25 per cent? Most analysts now believe that the Bank of England's base rate will almost certainly be increased to 5.25 per cent early in 2007, probably in February. City traders have already priced in such a rise and the case for another anti-inflationary increase has been further strengthened by reports from retailers of a strong Christmas. On balance, it seems likely that rates will peak at 5.25 per cent. Howard Archer, chief UK economist at Global Insight, believes that rates are likely to start and end 2007 at 5.0 per cent. However, some analysts disagree. HSBC are forecasting no rate rise in February and two 0.25 per cent cuts in the second half of 2007, leaving the year end rate at 4.5 per cent. When Will Affordability Bite? Although they may differ on specifics, the broad story of all house price forecasts for 2007 is that growth will be stronger in the first half of the year than the second. The main reason given for this is that most analysts expect the combination of higher interest rates and increased house prices to have a negative impact on affordability – people's ability to pay for something from their income. However, homeowners should not take this as a sign that the Bank of England will pre-emptively lower interest rates to protect consumers – according to Howard Archer, chief UK economist at Global Insight, the Bank of England's position on personal debt problems is that they are "more of a personal tragedy for those involved" and do not have "serious wider economic consequences". This means that the Bank of England may consider the rising levels of personal bankruptcy and home repossession as an unfortunate side effect of their drive to bring down inflation and not as a major problem in itself, leaving overly-indebted consumers at greater risk in 2007. |
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