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Sterling UK interest rate forecasts 2nd June 2008
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Market analysis
There will be further expectations of a sharp slowdown in UK growth over the next few months. The tightening of credit conditions will continue to undermine consumer spending and will also reinforce the potential for a further sharp deterioration in the housing sector.
The Bank of England is certainly concerned over the growth outlook, but fear over the inflation outlook has also increased substantially given the strong upward pressure on food and energy prices. There will also be the threat of wider inflation pressures as higher inflation expectations take hold.
In this environment, the Bank of England will have to be very cautious over cutting rates given that its mandate is to control inflation. Stability is likely for now, but there will be pressure for more decisive action if the economy deteriorates rapidly and a succession of split votes are likely.
Risk factors:
A further rapid deterioration in the housing sector would increase pressure for lower interest rates
Higher inflation from current levels would make it very difficult for the bank to cut rates
Forecasts: %
| Interest rate | Spot (02-06) | 1-month forecast | 3-month forecast | 6-month forecast | 12-month forecast |
| UK repo/base rate | 5.00 | 5.00 | 5.00 | 5.00 | 4.50 |
| Mortgage rate* | 6.90 | 6.90 | 6.90 | 6.90 | 6.50 |
* The standard variable mortgage rate is based on the base or repo rate. Standard rates vary considerably between individual lenders, but this is a representative average. Discounted rates are based on the standard variable rate. The repo/base rate will be used directly in setting the rates for tracker mortgages.
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