Some analysts argue that the days of record low interest rates (at 0.5%, the level at which they have been parked since March 2009) are numbered. The MPC announces the results of its May 2011 meeting at midday tomorrow (Thursday 5 May 2011).But how soon might we expect to see a rise in rates?
A number of factors are exerting pressure on the MPC to raise rates. These include the following:
-
The current elevated level of inflation (although this showed a slight - but possibly only temprorary - fall last month).
- The April 2011 decision of the European Central Bank (ECB) to
increase euro area interest rates to 1.25% (up from a
22-month run at the record low rate of 1%). ECB president Jean-Claude
Trichet explained
that this decision to raise rates was driven by the desire to keep
"inflation expectations in the euro area firmly anchored in line with
our aim of maintaining inflation rates below, but close to, 2% over the
medium term."
However, the MPC decision will also be informed by consideration of the
impact of an interest rate rise on UK consumers. It is estimated that an interest rate hike
could hit around 90% of UK mortgage holders
(who are on tracker or variable rate mortgages). This would inevitably squeeze incomes and dent consumer
confidence further.
Some analysts argue that the days of record low interest rates (at 0.5%, the level at which they have been parked since March 2009) are numbered. The MPC announces the results of its May 2011 meeting at midday tomorrow (Thursday 5 May 2011).But how soon might we expect to see a rise in rates?
