Latest interest rate predictions – December 2012

2 min Read Published: 06 Dec 2012

bank of england



So when will interest rates go up?

The market no longer thinks that the UK base rate will fall before it rises! Although the market does still think that interest rates will not rise above the current level of 0.5% until 2017.

But why is a rate rise looking unlikely?

  • NO official support for a rate rise – last month the Bank of England’s Monetary Policy Committee (MPC), who are the guys who decide the UK base rate, once again voted to keep the base rate at 0.5%.
  • But a cut in the bank base rate is no longer thought likely - Such has been the level of concern for the UK economy that even the head of the International Monetary Fund called for the Bank of England to not only print more money but also to cut interest rates further. But while earlier in the year the MPC discussed the possibility of cutting the base rate to just 0.25%, the latest MPC meeting minutes have dismissed this cause of action for the forsseable future.
  • Inflation is proving sticky – the official measure of UK inflation rose to 2.7% in October, up from 2.2% in September. Worryingly, inflation is expected to pick up further in the coming months as energy bills rise and high inflation could derail any economic recovery. To combat inflation interest rates are usually increased. Although inflation remains stubbornly high it is expected to fall back under the Bank of England's 2% target in 2013.
  • The UK double-dip recession is over! – The UK economy unexpectedly grew by 1% during the third quarter of this year, the highest figure for 5 years. In theory a growing economy increases the prospect of a rate rise but the fragility of that growth will remain a major deterrent. In fact back in July the Bank of England even took to printing £50bn more money (aka Quantitative Easing) to try and boost the economy, and economists believe they will do more soon. To find out how this will affect you read my article - Quantitative Easing explained and how it could affect you
  • Unemployment seems to be falling – The number of people out of work fell by 49,000 to 2.51 million in the three months to September, compared with the previous three month period. The UK unemployment sits at 7.8%. In theory a stable growing economy, will keep a lid on unemployment, and be more conducive to a rise in interest rates.
  • UK economic growth forecasts continue to be cut – be it the National Institute of Economic and Social research, the Bank of England themselves or the Independent Office for Budget Responsibility, which now predicts an economic contraction of 0.1% in 2012 before growth of 1.2% in 2013. Raising rates would hammer consumers further and could derail any sniff of an economic recovery which would be bad news.
  • Mervyn King doesn't want to raise rates – Mervyn King is the guy who heads up the group of people who set the bank base rate. Mervyn has previously said that there would be no rise in interest rates until there was clearer evidence that the economy was growing and that unemployment and the interest rates actually paid by consumers were falling. None of these will be happening any time soon.

So should you rush to fix your mortgage now while rates are low?

Luckily Dean, a mortgage specialist, has answered this question in his article "Is now the best time to remortgage?" But if you want more help or advice then you can contact Dean by clicking on the  'contact an adviser' button below.