Future of Interest Rates in UK

By: Richard Pettinger
Submitted: 2007-01-17 16:25:28
Print this article | Tell a friend | For publisher | Social Bookmarking
Rating:
 

The latest date from the Office of national statistics shows that prices rose less than expected in the previous month. The CPI measure of inflation remained at 2.4%. The RPI (which includes housing costs) rose to 3.7%. However this was less than expected and in the Bank’s latest inflation report they reduced their inflation forecasts for next year to “around 2%” for the middle of next year.

The reasons for offering a lower inflation forecast is due to a number of reasons. Firstly oil prices have fallen,by 23% since August, due to increased supply from OPEC. This feeds through into lower transport costs. Also Unemployment continues to edge up, it is now 1.7 million up by 27,000 on the previous month. With rising unemployment levels it is likely that wage rises will be moderated. However the Bank did mention a note of caution. They said with regard to the labour market it is hard to predict future wage inflation because of unreliable data collection. For example they mention that it is difficult to calculate how many eastern European workers are entering the country. If there are more migrants than measured it will help to keep wage inflation low.

However despite difficulties with some statistic many economists are now predicting the UK economic cycle has peaked and the future trend of interest rates may be downward.

However there is still the possibility interest rates may continue to rise in the future. Firstly CPI inflation is still forecast to rise to 2.7% in the next couple of months. Also the levels of borrowing continue to reach all time highs. This is illustrated through the rapid growth in M4 (broad measure of inflation.) Although money supply is often an unreliable guide to inflation there is evidence that money supply growth of 14% may cause inflationary pressures in the future. With recent talk of 125% mortgages the Bank’s governor Mr King said that

“Some people had taken on far more credit than it was ever plausible to repay”

He went on to say it was a real social problem but not one that would directly affect interest decisions. In addition to high levels of consumer borrowing the ever resilient housing market still provides ammunition for inflation hawks. With house prices continue to rise this could be a continued source of higher consumer spending and possibly inflation.

Overall the report is good news for those home owners who are worried about rapidly rising interest rates. The most likely scenario is only a very small future rise in interest rates.

Richard is an economics teacher in Oxford. Richard has written many articles on economics and the UK housing market. He edits a website on guide to UK Mortgages This offers advice on different types of mortgages and the latest movements in UK housing market

Article source: Expert Articles

Most Recent Articles in Economics category

  • Developments Prior to the Currency Debates - By: Rupert Mackenzie
    During the 18th century England was nominally on a bimetallic standard (consisting of silver and gold), however, the mint price of silver was intentionally undervalued to keep it out of circulation and thus a de facto gold standard functioned: banknotes issued both by the Bank of England and country banks were convertible into gold upon request.
  • Investors Moving Money to European Banks Fearing U.S. Economy and Major Bank Failures - By: Brett Schoneman
    "Many investors are placing part of their hard-earned money out of harms way into foreign banks that do not have exposure to the U.S. sub-prime mortgage crises," says Kevin Wessell, CEO of Offshore Company. Mr. Wessell is also the author of "Build Your Financial Castle" and a nationally renowned asset protection seminar speaker.
  • The success of Africa's exports - By: Paul McIndoe
    While Africa faces tremendous challenges on the road to integration into the world trading system, many African export sectors have actually outperformed world market growth.
  • The 10 Movers and Shakers in Turkey's Banking Sector - By: James Kara Murat
    In Turkey there are many sectors active and dynamic and the banking sector is one of them. The dynamism of the banking sector is a result of the lifting of certain restrictions
  • The Biggest Banking Mergers & Acquisitions in Turkey - By: James Kara Murat
    Turkey is making some economic reforms in order to become part of the European Union. As a result, the Turkish banking industry has seen many changes.
  • Barcelona economy - By: Kirsty Connell
    Barcelona has a highly diversified economic structure. Find out the facts which lead to the growth of Barcelona economy.
  • Indian Retailers Accelerate Evolving Pace - By: Gaurav Doshi
    Retail industry in India is gradually edging its way towards becoming the next boom industry with contributing more than 10% to Country’s GDP and around 8% employment. Several Indian and global players are developing strategies to enter such a fast paced and growing market. Also the whole retail industry is taking new shape, the traditional market giving way for the more organized market in the form of departmental stores, hypermarkets, supermarkets and specialty stores.
  • The Real State of the Economy - Good or Bad? - By: Stephen Morgan
    There is something about the US Economy at the moment that I for one don’t get. Now it may be that being a brit, I am a little slow on the uptake; this has been known to happen every now and then but at the moment I cannot fathom several things out.Firstly, the UK economy, despite the Chancellors proud claims, is not in exactly the best of shapes but in the US, the Government is technically, if not practically bankrupt.
  • India Emerging As A Global Healthcare Destination - By: Christine Macguire
    Health is vital for ethical, artistic, material and spiritual development of man. It is very certain that of all the gains, the gains of health are the highest and the best. Traveling abroad for treatment has been an age-old practice.
  • India-Srilanka Free Trade Agreement(FTA): The Success and Road Ahead - By: Dr Suvrokamal Dutta
    The Free Trade Agreement between India and Srilanka came into full existence from 1st March 2000.This FTA basically deals with the modalities of the Duty Free Import of the Goods manufactured in Srilanka. Which exempt specified goods imported under Indo-Srilanka Free Trade Agreement from the Import Duty up to 100%.