Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
STOCK MARKET DISCOUNTING EVENTS BIG PICTURE - 31st Jan 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

UK Interest Rate forecast for 2007 - Bank of England to do battle with inflation

Interest-Rates / Forecasts & Technical Analysis Dec 26, 2006 - 01:57 PM GMT

By: Nadeem_Walayat

Interest-Rates

UK Interest rates end 2006 at 5%, up 0.5% on the years low of 4.5%, as the bank of England strives to bring inflation back under control. Though the bank increasingly seems to be fighting a losing battle against a soaring money supply of over 14% ! stoking the fires of inflation as the RPI hits 3.7% and the CPI 2.7% the highest levels since 1993 !

With the economy near full employment, the inflation figures are set to wage costs soaring feeding into a wage price spiral. which is expected to feed through into even higher inflation during 2007. The middle class already are experiencing inflation closer to 6% than the 2.7% that the CPI represents.


As my previous articles indicated, ( UK Interest Rates could rise to 5.75% in 2007 - 7th Nov 06), and ( UK Interest Rates set to rise to 5.25% by March 2007 -10th Nov 06 ) UK Interest rates are set to rise further in 2007, even talk of a US slowdown or sterling strength is not going to prevent the Bank of England from raising interest rates during 2007. The question is not if, but rather how high will interest rates go !

UK Interest Rates forecast for 2007

The above chart shows that interest rate futures are already discounting a further rise by March 2007 to 5.25%. A rise to 5.5% is also expected with the 3 month LIBOR forecast to hit to 5.75% late 2007. As stated earlier in this article, the problem is that, unless the growth of the money supply is controlled, then interest rate rises of a further .25% is NOT going to be able to put much of a dent into inflation ! It would take interest rates rising to a level where they hit the economy, push house prices into reverse and increase unemployment significantly to reign in inflation.

Technical Analysis
Time - The up trend to 5%, took about 1.5 years, after which the market corrected over the next 12months to 4.5%. Therefore a 1.5 year trend forecasts the next Peak in UK interest rates between Aug and October 2007.
Target - The price target of 5.7% represents a 50% retracement of the decline in interest rates to 3.39%, and also the 2005 target for a peak in UK interest rates (Nov 05)
Moving Average - As long as the 3 month LIBOR remains above the 200day moving average then the price will trend towards the 5.7% target.

So I am sticking with the earlier forecast of UK interest rates hitting 5.25% by March 2007 and possibly even going as high as 5.75% during the 2nd half of 2007 as the Bank of England is forced to reign in inflation as it hits the upper boundary of 3% (CPI).

The risks to the forecast are a sharp drop in the UK housing market or sharp slowdown in the UK Economy, though thus far the rise to 5% has failed to have an impact on either.

by Nadeem Walayat

Disclaimer - This Analysis / Forecast is provided for general information purposes only and not a solicitation or recommendation to enter into any market position, and you are reminded to seek independent professional advice before entering into any investments or trading positions.

Attention editors and publishers ! This article can be republished. Republished articles MUST include attribution to the author and the following short paragraph:

The Market Oracle is a FREE Financial Markets Forecasting & Analysis online publication. We aim to cut through the noise cluttering traditional sources of market analysis and get to the key points of where the markets are at and where they are expected to move to next ! To view articles, visit http://www.marketoracle.co.uk


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Les Duff
17 Jul 08, 10:13
Savings

Does higher bank interest rates mean better saving interest rates,should I be in a fix saving rate or a variable rate


Post Comment

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