West Brom predicts no Base Rate change

Amanda Jarvis

May 11, 2006

The Bank of England Inflation Report, in addition to the positive tone of recent economic data, has suggested that the chances of a cut in the Base Rate this year have virtually disappeared.

Commenting, James Taylor, Mortgage product manager explained: “The Inflation Report predicted that Consumer Price Index (CPI) inflation would be broadly in line with its 2 per cent target on the two year policy horizon, but crucially, this forecast is based on market expectations of a small increase in interest rates. The forecast based on no change in Base Rate showed inflation slightly above its target, suggesting the Monetary Policy Committee (MPC) believes it will need to raise interest rates in order to hit its inflation target.

“That said, it is unlikely that the MPC will change rates this year if Gross Domestic Product (GDP) growth fails to accelerate to 3 per cent as we expect. This should lead the MPC to reduce the level of interest rates it believes is required to meet the inflation target.

“In line with this view we now expect interest rates to remain on hold at 4.5 per cent for the rest of this year. The direction of the next change in rates will then largely depend on the strength of the global economy. If global growth remains close to its current level, then UK rates will probably rise next year.”

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