Interest Rate Update to – 05 June 2009

Current UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rate likely to stay unchanged for most of 2009

Bank of England Keeps Interest Rates on Hold Again

The Bank of England's Monetary Policy Committee voted this week to keep interest rates on hold at 0.5% for a further month. This decision was widely expected and inevitable - given that the quantitative easing (money printing) programme is still underway, raising interest rates is not really a possibility.

Quantitative easing (QE) is the name given to the current Bank of England programme of injecting money into the economy by buying government and corporate bonds, in the hope that this money will filter through to banks and businesses and stimulate lending and economic activity.

When Will Interest Rates Change?

Interest rates are extremely unlikely to change before September and may well remain unchanged for longer, depending on the results and duration of the QE programme.

Roger Bootle, economic adviser to Deloitte, told The Guardian "What matters is whether the data continues to improve at its recent rates. And I think that this is unlikely, when unemployment is rising, pay growth is slowing, house prices still look overvalued and bank lending growth has shown minimal signs of picking up."

Ian McCafferty, chief economic advisor to the CBI, echoed these sentiments, saying that there are "some encouraging, if tentative, signs that the QE programme is reducing the downside risk to the economy, but monetary and lending conditions remain fragile."

I Keep Hearing About Positive Signs - What Are They?

Well, various indicators of economic activity have shown growth in the last month or two. As well as the widely reported increases in house prices, retailers reported a 0.9% increase in the quantity of goods sold in April.

However, most economists believe this is only a temporary phase and that a true recovery is still some distance away. Speaking to The Times, Professor Charles Goodhart described the current situation as a "Potemkin recovery" - a reference to the fake villages that were built in 18th century Russia to convince the Empress that all was well in the countryside, when in fact most peasants were living in squalor.

It can be difficult to accurately forecast the movements of the UK property market and to predict forthcoming changes to interest rates – that is why each week we analyze all the latest expert opinion on the state of the UK property market and condense it into a short, easy-to-read UK Property Market Forecast. We also do the same for UK interest rates, and each week produce an Interest Rate Forecast which provides the latest interest rate forecasts and predictions for the UK.

Understanding the factors that are influencing interest rate and property market forecasts can give you an advantage when considering a property purchase. The UK property market is affected by a number of different factors, which combine in sometimes surprising and quite localised ways. Our weekly UK Property Market Forecast takes all of these into consideration and provides a mixture of national and local property market forecasts.

In much the same way, movements to UK interest rates can sometimes be forecast. We provide the latest interest rate forecasts and predictions from leading UK experts, together with comment on what it all means and how factors like inflation and energy prices are influencing interest rate forecasts.