Inflation reports from the Bank of England showed that higher rates would be needed to bring down inflation and keep it close to the Bank’s target of 2 per cent. Governor Mervyn King has said that the central projection was for inflation to settle around target in the event of a 0.25 per cent rise later this year.
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Following the recent rise in the Base Rate to 5.50 per cent, a recent poll showed that 56 per cent of economists anticipated a rise. This was almost double the 33 per cent who anticipated the rise a week ago. If interest rates remain at 5.50 per cent, the forecast is for inflation to be above target and rise sharply in two year’s time, with a high chance of consumer price inflation rising well above target.
With the economy reported to be expanding at a rapid pace and the strong growth appearing to continue into the second quarter of the year, King has said that the four Base Rate rises since August 2006 reflected the Bank’s best guess to the path of inflation once energy prices had settled down.
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Nick Gardner, communications director at Chase De Vere Mortgage Management, said: “This doesn’t come as any great surprise to me as interest rates are still above the target radar and after the recent 0.25 per cent rise the City was still expecting another rise. On the mortgage front, another rise has not been priced in as yet but as there has not been much movement in mortgages there is a window of opportunity as fixed rates still remain very popular.”
