Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

UK Interest Rates could rise to 5.75% in 2007

Interest-Rates / UK Interest Rates Nov 07, 2006 - 05:12 AM GMT

By: Nadeem_Walayat

Interest-Rates

With this Thursdays BoE decision of a rise in interest rates to 5% a near certainty. There are clear signs that rates could carry on rising to much higher levels during 2007, due to rising inflation, fed by strong growth in the UK's Money Supply. The projection of 5.75% was first forecast by the Market Oracle in November 2005, with subsquent economic data confirming the trend in higher interest rates. Inflation as measured by CPI is currently running at 2.4% with RPI at 3.6%, well above the old cap of 3%, with little signs of abating despite the rate rises todate.

The spread between the base rate (4.75%) and RPI (3.6%), is currently at 1.3%, marginally higher than the low set in 2003 of 1.1%, which preceded a rise in interest rates from 3.5% to 4.75%. This took the spread to 2%, since that time, RPI has risen and interest rates have fallen to 4.5%. This puts the UK under similar interest rate hike pressures as during the start of the rate hikes back in 2003 and targets an interest rate rise to 5.75%.


UK Interest Rates could to rise to 5.75% during 2007

For each 0.25% rate rise economic growth is likely to slow by 0.3%, thus a rise to 5.75% would imply a reduction in forecast GDP growth from the current 2.6% to 1.6%, which means that the UK is still likely to avoid a recession during 2007.

Other factors influencing rate rises towards 5.75% during 2007 are -

House Prices - Against BoE expectations, House prices have started to accelerate higher, and or now on target to achieve year on year growth of 10%, this despite the rate rises since 2003. The growth brings average house prices up to£169,623. With data from the BoE showing the number of mortgage approvals -- seen as a gauge of future demand, rising to 126,000 in September, which is the highest level of activity in over two and a half years.

UK Money Supply - The BoE data shows that M4 money, a broad measure of money supply, is rising at its fastest rate in 16 years on which will ensure higher inflation over the medium term. M4 rose at an annualised rate of 14.5%, the biggest rise since September 1990.

The Money Markets - are already looking to the next rate rise after this months, with the implied rate for March 2007 at 5.42 percent, which is up from 5.19 percent at the start of September 06.

Related Articles
Nov 05, 2006
UK Insolvency rise by 55% and on target to hit a record 100,000 for 2006 As interest rates are due to rise to 5% !
Oct 22, 2006
UK Interest Rates Forecast to rise much higher due to rising Inflation and high Money Supply Growth
OcT 17, 2006
UK Inflation rises to a 8 year high of 3.6% (RPI), whilst CPI dips to 2.4%
Oct 05, 2006
BOE Keeps Interest Rates on Hold Whilst the ECB raises to 3.25%
Sept 21, 2006
Interest rates likely to rise to 5% in November 06
August 12, 2006
Interest rate trend uptrend accelerates !
August 05, 2006
Surprise rise in UK Interest Rates to 4.75%
March 07, 2006
Interest Rates Correction is Over
Nov 14, 2005
UK Long-term Interest Rates Trend is still UP

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

RK1001
09 May 07, 01:32

Your interest rate forecast seems to be coming true.

Any update on what to expect after UK rates hit 5.75% ?

i.e. during the rest of the year ?


Graham
09 Oct 08, 14:11
Required Information

Can i ask how u forecast this interest rate? eg, model etc.

Hope u can help


Nadeem_Walayat
09 Oct 08, 22:34
Interest rates forecast 2007 - 5.75%

The forecast was as a consequence of a series of articles over the preceding 12 months as listed above (see analysis). i.e. the graph from November 2005, which initially forecast the peak to 5.75% in terms of juncture, following the Bank of England's resolution of its sideways trend at the cost of future inflation.

However as the site has grown and become much more popular, I have gradually committed more of my time to writing articles and thus changed my style of writing over the years to include more relevant and updated analysis within the analysis / forecast articles, rather than relying on link backs to the preceding articles. Though the problem now is that it takes as long as a week to write a single substantial article, rather than the couple of hours that the above would have taken which relies on link backs to preceding analysis to elaborate on the reasoning behind the conclusion.

In the case of the 2007 forecast I also refer you to the December 2006 article - UK Interest Rate forecast for 2007 - Bank of England to do battle with inflation, which contained an update of the above chart following resolution to the BOE's mistake to keep interest rates on hold which has resulted in much higher subsequent inflation as the above article correctly surmised.

Therefore analysis and forecasts are accumulative, built upon ongoing interpretation and trend analysis across a wide range of influencing inter-markets and economic indicators rather then relying upon a single eureka moment.

Best.

NW.


Ashley White
14 Oct 08, 09:59
Please Help

Hi,

Iam currently doing a university project on forecasting interest rates.

I was wondering if you could suggest around 3 forecasting models i could use along previous data to help me compare the the difference.

Much apreciated if you can help in anyway.

Ashley


Nadeem_Walayat
14 Oct 08, 10:25
Trade Interest Rate Futures to Know How to forecast Interest Rates

The real world does not work as theory implies how it should, the text books and economic theory as great theoreticians such as Bernanke are finding out.

Each time period is different and requires differing inputs to determine forward interest rates due to the overall state of the markets, economy, inter-market relationships.

I guess the most important consideration in being able to determine forward interest rates is by actually being immersed within the markets i.e. having exposure to interest rate sensitive investments such as derivatives, bonds etc...

As without having money on the line that 'edge' will be missing that allows one to slice through the theoretical

In summary - there is no one magical model, each time period is different, hence the current period's model is more market sentiment sensitive and hence completely opposite to economic models, as there is a need for deep interest rate cuts now, despite surging inflation as per the interest rate forecast for 2009.

Good luck, but you won’t find the answer in an economics book that is why the Bank of England’s 2 year inflation forecast is consistently wrong, i.e. the Bank of England has only hit its target in 5 months out of 5 years, and thus the degree of interest rate volatility when inflation is supposed to be the primary determinant for interest rates.

Therefore if the economists cannot model inflation forecasts accurately then they do not stand a hope in hells chance of modelling interest rates. As if you weight your forcast to one component whilst not incorporating perhaps more important real-world inputs then it is much more important that the inflation analysis is accurate.

Whereas if you utilise and accurately analyse multiple inputs such as the exchange rate, house prices, stock prices, then the importance of accuract on inflation is less important as it is 1 of 4 contributing to the overall forecast trend.

And TREND is an important determinaned therefore you do need to learn technical analysis as that also applies to be able to interpret chart patterns.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules