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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

UK Interest Rates set to rise to 5.25% by March 2007

Interest-Rates / Forecasts & Technical Analysis Nov 09, 2006 - 11:00 PM GMT

By: Nadeem_Walayat

Interest-Rates

After the markets digest yesterdays expected rise to 5% (the 2nd rise of 2006). It is highly probable that this is NOT the peak in interest rates, far from it, yesterdays rise confirms that the trend in interest rates is firmly higher, so we ponder when the next rise in interest rates is likely to occur, taking the Base Rate to 5.25%.

The housing market continues to accelerate, with the Halifax reporting yesterday a rise for October of 1.7% ! On top of this consumer price inflation is expected to continue rising from its current rate of 2.4% over the coming months.


Additionally the money markets are pricing in a rate rise during early 2006, with the 3 month LIBOR trading at 5.20%. Thus it is highly probable that the next rate rise will occur either in Feb or March 07, at this point we are leaning more towards March 07.

A Reuters poll of experts at 48 City banks yesterday pointed to a four-in-ten risk of another rate rise in February. Fourteen of the forty-eight economists polled believed that rates would rise again next year, 18 that they would stay on hold and 16 that the Bank's next move would be a cut.

The outlook should become clearer in the coming weeks as the Bank Of England's quarterly inflation report is released as well as the publication of the MPC minutes.

The European Central Bank is also expected to raise rates in December from 3.25% to 3.50%. The ECB said in its November monthly bulletin 'Strong vigilance remains of the essence so as to ensure that medium to longer-term inflation expectations in the euro area remain solidly anchored at levels consistent with price stability'.

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