Latest interest rate predictions – January 2013

2 min Read Published: 09 Jan 2013

bank of england

Update 6th February 2013 - for the latest interest rate predictions click here.

So when will interest rates go up?

The market can't seem to make its mind up. Last month it was ruling out a future rate cut but then started pricing one in for next year. But one thing the market seems set on, is that the bank base rate won't rise above 0.5% before 2015 at the earliest, with some analysts not expecting this to happen 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%.
  • Inflation still proving sticky – the official measure of UK inflation remained at 2.7% in November. 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 the next year.
  • The UK double-dip recession is over! – The UK economy unexpectedly grew by 0.9% during the third quarter of 2012. In theory a growing economy increases the prospect of a rate rise but the fragility of that growth will remain a major deterrent, as some analysts are expecting the UK economy to contract as we head in 2013.
  • Unemployment seems to be falling  – The number of people out of work fell by 82,000 to 2.51 million in the three months to October, compared with the previous three month period. That was the biggest quarterly fall since 2001. The UK unemployment rate now 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 that after a fairly stagnant 2012 that the economy will grow by just 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.... but then again he's not going to be in the job much longer as he will be stepping down in 6 months time.

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

Luckily Dean, a mortgage specialist, recently 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.