Brian Murphy Blog

Wednesday 8th June 2011

Will interest rates increase soon?

I have read a number of comments in recent days where various economic forecasters are providing their insight on where they think interest rates will be in the coming months.

Last week the British Chamber of Commerce commented that they believe the bank base rate will rise to 2.75% by the end of 2012. This is quite an aggressive forecast and is quite at odds with other bodies.  

Conversely the Ernst & Young Item Club still take the view that the base rate could remain at the current 0.5% level certainly until the end of 2011 and possibly throughout 2012 due to the overall weakness of the UK economy and this view appears to be shared by the majority of forecasters who regularly comment on this much debated subject.

The outgoing monetary policy committee member Andrew Sentence has been fairly critical of his former colleagues suggesting that the committee is losing credibility in not tackling inflation which is its primary mandate. The new MPC member is Ben Broadbent who will be attending his first monthly meeting in a few days and it will be interesting to see if he shares his predecessor’s more hawkish economic views.

Sentence had repeatedly voted for a base rate increase of 0.5% but the doves on the committee have continued to hold sway and with the austerity measures still not really impacting on most people as yet it seems less likely that the committee would instigate a change of policy at this stage when the economy still appears fairly weak and unbalanced.

Brian Murphy is Head of Lending at Mortgage Advice Bureau

National Mortgage Index – May 2011