UK Interest Rate: 5.25%

UK Interest Rates Forecast: Further 0.25% rise likely in April or May

A mixture of news this week, all pointing at the likelihood of another rate rise by midsummer's day.

Falling Energy Bills Could Lead To Interest Rate Rises

Bank of England MPC member Kate Barker has said that falling gas and electricity prices over the next few months could strengthen the case for further interest rate rises. She made the comment on a visit to businesses in Norfolk and Suffolk, saying that reductions in energy prices could result in people's spending power increasing, leading to increased inflation concerns.

Ms Barker went on to say that "…the next few months are going to be an interesting time for inflation."

Bank of England Governor Suggests Further Rise Likely

The Governor of the Bank of England, Mervyn King, has said that he sees "no clear reason" for the Bank's Monetary Policy Committee to deviate from the forecast it published in the last quarterly inflation report.

This showed that inflation would fall to 2 per cent within the 2 year target period, but that to achieve this, the base interest rate would need to rise to 5.5 per cent in the second quarter of 2007.

King made the comments whilst meeting with the House of Commons Treasury Select Committee.

Economists Vote For May Rate Rise

In a poll of 60 leading economists conducted by Reuters on the 22/23 March, 58 per cent said that they expected the base rate to rise to 5.5 per cent in May, while only 18 per cent expected a rise in April.

This represents a considerable shift on the previous poll, which was split 21:22 between April and May. Jeremy Stretch, at Rabobank, attributed the shift in opinion to the publication of March's MPC meeting minutes, saying that "It was a toss up between April or May until the minutes".

The minutes revealed that more MPC members than expected had voted to hold rates unchanged in March, with none voting for an increase.