November rate rise likely

Posted: 08 Sep 2006 13:07:32 GMT

Immediately after the Bank of England's decision yesterday (September 7th) to leave interest rates unchanged at 4.75 per cent, analysts began to speculate on October's update.

Many industry insiders consider a further rate rise will occur this year as the bank's monetary policy committee (MPC) attempts to curb the inflation rate.

Currently the inflation rate stands at 2.4 per cent, 0.4 per cent higher than the bank's target for this year.

However, it is widely agreed upon that the MPC will choose not to raise rates in October, but wait until November to take rates up to five per cent.

Howard Archer, chief UK and European economist for Global Insight, stated: "Critical to the interest rate outlook will be how well consumer spending holds up over the coming months and whether underlying price pressures build up.

"We currently forecast a 0.25 per cent hike to five per cent in November, but we then expect interest rates to remain at that level for some considerable time."

Interest rate rises are traditionally considered as being bad news for homeowners and first-time buyers looking to get a mortgage.

Rates are put up by banks to coincide with a change and affordability does become an issue, but currently the interest rate is not at a level that makes mortgages unaffordable.

Consumers can still get a good deal on a tracker mortgage and as the interest rate is believed by many to stabilise at five per cent for some time, a tracker option isn't too big a risk.

Drew Wotherspoon from John Charcol stated: "Trackers will continue to be a good option unless the base rate rises above 5.25 per cent which won't happen in the near future."


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