Interest Rate Update 25 November 2009

UK Interest Rate: 0.5%

UK Interest Rates Forecast: No change this year, gradual increases in 2010/11

BoE to Increase Interest Rates Over 2-3 Years

The Bank of England is likely to gradually increase interest rates over the course of 2-3 years, according to Mervyn King, Governor the Bank’s Governor.

He made the comments when speaking to the Parliament’s Treasury Select Committee this week, saying that interest rates would be raised “over a period of two to three years”, at the same time as the bonds bought as part of the quantitative easing program were sold.

King said that “the overriding problem is to know by how much and when to do it.” He described the economic recovery to date as “not a particularly strong recovery” and maintained that he would keep an “open mind” about the possibility of any further QE activities.

Mortgage Approvals Up 98% in October

This week also saw news of a dramatic year-on-year rise in mortgage approvals. According to the latest figures from the British Bankers Association, mortgage approvals in October 2009 where 98% higher than the same period in 2008.

In October, 42,238 loans were granted for house purchases – the highest figure for 21 months but only slightly higher than September’s figure of 42,073. This slowdown in growth prompted Howard Archer of IHS Global Insight to say that the “upward trend in housing market activity is losing steam.”

However, it’s possible that the level of approvals has just hit a natural ceiling for the time being – it has more than doubled over the last year, from a low of 18,262 in November 2008.