Boffins predict one last hike in interest rates

UK interest rates have not finished climbing despite cautious predictions last week from the Bank of England over a slowing economy and an easing housing market.

A survey of financial analysts reveals the majority think the base rate will increase when the Bank's Monetary Policy Committee meets to discuss the current 4.75 per cent.

Just 37 per cent of experts surveyed believe there will be a lowering in rates, compared to 63 per cent predicting a hike.

The online poll by Idealglobal.com clashes with expectations that the MPC minutes, due on Wednesday, will show a unanimous 9-0 vote in favour of freezing rates.

Experts said clear upwards pressure in inflation, through the highest output prices for nine years in Britain's industries, as the strongest reason for not calling an end to interest rate rises.

Earlier this week, Deutsche Bank, who predicted the last housing crash, said there is a chance the Bank will raise rates again, ensuring the fifth rise since November 2003.

Yet they said as time goes on, the risk of rising rates diminishes, with the only assurance being falling rates by the second half of next year.

Much of the decision to cut or hike rates is largely resting on the housing market; depending on whether there will be a much sharper than expected tumble in house prices, allowing cuts to be introduced.

Criticism that the Bank has previously kept interest rates at an artificially high level surfaced last week, and has been endorsed by business leaders in Birmingham.

They accused the Bank of "complacency" over interest rates and said the business plea to cut rates to help struggling manufacturing and export firms has been ignored.

"The Bank appears to be satisfied that it has successfully controlled the economy even though experts are predicting further interest rate rises," said Jerry Blackett of the Birmingham Chamber of Commerce.

"There was even talk about opening the champagne at the Bank but a celebration would have little fizz in the West Midlands. We applaud the House of Lords for criticising the Bank."

 

21st November 2004

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