Another possible interest rate in Spring?

Following the results of a Reuters poll, it seems that interest rates may see yet another rise in around April or May of this year, taking them from 5.25% to 5.55%.

Until August last year the interest rate in the UK was four and a half percent. However, in August the Bank of England took this up to 4.75%, and then in November last year increased the rate again to 5%.

In January 2007 the rate increased once more to 5.25%, and it seems that another rise by a 0.25% is on the cards, which would take the rate to 5.5%.

Ross Walker, from the RBS, said that the most likely reasons for another hike being enforced by the Bank of England would be wages and inflations expectation.

He said: "We will probably still see one more hike. The bank will probably be minded to err on the side of caution, raising rates once more and take some of that tightening back, if need be, next year."

Many markets are now predicting that there will be a further quarter of a percent interest rate hike by around May of this year, though some think that the interest rate increase could come as late as August 2007.

However, although most are expecting another rise to 5.5% this year in the UK, it is predicted that in the early part of 2008 the interest rates will drop back down to five and a quarter percent.

Earlier in the week, one leading economist, working for a company that advises the treasury and the Bank of England, stated that a hefty interest rate rise of between 3% and 5% may be needed in order to bring under control the property bubble, which he stated was likely to burst and cause devastation for homeowners. He said that although the Bank of England was raising rates by a 0.25% here and there, this was unlikely to have any benefit.

Tom Smith
19th March 2007

 

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