Are we heading for 6.5% base rate?

Posted: 18 Jul 2007 11:06:04 GMT

Mortgage holders are being told to prepare themselves for large increases in their payments.

Mortgage holders are being told to prepare themselves for large increases in their payments.

It comes as the latest figure show that inflation remains above the Bank of England's two per cent target and is higher than many experts had predicted.

Inflation did fall in June, from 2.5 per cent to 2.4 per cent, but it is the 14th consecutive month that the target has not been hit and further base rate rises are likely as a result.

Economists are predicting that interest rates could now hit 6.5 per cent, while a rise to 6.25 per cent now looks almost inevitable.

"Our best case is for rates to go to six per cent in September, but there's a growing threat that the bank will continue tightening after that," James Knightley from ING Bank told the Daily Mail.

"If rates hit 6.5 per cent there could potentially be a crash in the consumer sector."

This prediction follows a dire warning from Bank of America economist Matthew Sharratt, who said the UK housing market could crash in 2008.

However, other experts are predicting that we will not see a full-scale crash but rather a sharp slowdown in the market.

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