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Posted - 09 May 2007 : 14:03:58
UK interest rates set to hit 5 and a half
The Bank of England is widely expected to raise its main interest rate by a quarter of a percentage point to 5.5% because of concerns about inflation.
Rates have been left unchanged for two months and almost all of the economists questioned expect a rise on Thursday.
UK consumers are proving robust in the face of the higher borrowing costs, and price growth has remained well above the government's preferred 2% level.
A number of analysts have warned that rates need to rise by half a point.
Even a quarter-point rise to 5.5% will put the UK's base rate at its highest level since 2001.
The Bank of England's Monetary Policy Committee (MPC) is due to announce its decision at 1200 BST on Thursday.
"We are convinced that the MPC will raise rates," said Philip Shaw of Investec, adding that he would not completely rule out a half a percentage point increase.
The higher interest rates would mean that homeowners with a mortgage of £100,000 would see monthly repayments rise by about £16 on average.
Back-to-back?
However, some analysts did warn that no rate increase was ever a foregone conclusion.
They pointed to the fact that the Bank was due to release its quarterly inflation report next week and might decide to hold off on making changes until it had been published.
At the same time, some economists believe inflation will fall below 2% by the end of the year, as the effect of high energy prices diminishes following price cuts at the UK's biggest suppliers.
Giving evidence to MPs at the end of April, Bank of England Governor Mervyn King said that there could be a "sharp" decline in the UK's rate of inflation over the next four to six months.
There also is evidence that the housing market may be losing some of its steam, with price growth slowing slightly and the number of new mortgage approvals dipping.
Despite these signs, the smart money is still on the Bank of England adding to its three interest rates increases since August 2006.
Howard Archer of Global Insight said that while it was probable that inflation world fall below 2% before the end of the year, "there is an increased risk that the retreat will be slower and stickier than previously anticipated".
He added that two increases, one in May and one in June, were a "very real possibility".
Source: bbc.co.uk
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