Up or down for interest rates?
The Bank of England Base Rate has been at 0.5 per cent for a year now. The only way is up, but the question on everyone's lips is when will rates
rise, and how quickly?
For mortgage borrowers and savers the future of interest rates directly affects your monthly repayments and the interest you receive on your
hard-earned cash. Unfortunately, interest rates have never been harder to predict than in the current economic environment, but many experts are
willing to have a stab.
Question is, who do you believe?
Set to rise
As the economy gains strength and inflation rises, some believe the Bank of England will be forced to hike interest rates. Indeed, December's inflation
report showed a massive jump in the Consumer Prices Index to 2.9 per cent, leading many pundits to hastily revise their rate predictions upwards.
This is because moving interest rates up and down is one way that the Bank of England can control inflation. As a very general rule of thumb the Bank
might increase interest rates to control increasing inflation, or keep them low to avoid deflation.
However, The Bank of England also this month said in its inflation forecast that although it expects inflation to rise above 3 per cent in the near term, it
thinks it could fall below 2 per cent later in the year. The Bank stressed there was a high level of uncertainty in medium-term inflation predictions, so
the picture is still very unclear.
Ian McCafferty, chief economic adviser at the Confederation of British Industry, reckons they could rise in a matter of months: "As the economy
recovers the Bank will have to think about returning monetary conditions towards more normal levels. We expect this to lead to a small rise in interest
rates around the middle of this year."
Ben Thompson, director of mortgages at Legal & General agrees: "More bullish elements within the Bank of England have been hinting that interest
rate rises are to come later this year and this is looking increasingly likely."
Simon Ward, chief economist at invest