Adverse Mortgages UK

An influential think tank has predicted that interest rates will rise to five per cent in November before reaching 5.25 per cent at some point in early 2007.

Following a rise in interest rates from 4.5 to 4.75 per cent in August, in its latest quarterly Economic Review the National Institute for Economic and Social Research (NIESR) has predicted that the Bank of England's monetary policy committee (MPC) will raise interest rates to five per cent in November in a bid to control inflation.

However, high oil prices and continuing strength in the UK housing market have led many economic observers to conclude that interest rates will have to rise still further in the New Year, and will be maintained at above five per cent for the foreseeable future.

"There is unlikely to be room for more than a very small eventual reduction in interest rates which we expect to stay at or above five per cent," the review stated.

The Scotsman quoted Martin Weale, NIESR director, saying, "inflation in the retail and consumer price indices has remained relatively strong into the third quarter of this year", driven by higher mortgage interest payments and more expensive household durable goods.

However, he rejected suggestions that the MPC should consider a 0.5 per cent hike in interest rates at its next meeting in November.

Meanwhile, late last week chancellor Gordon Brown confirmed that inflation was one of the government's key priorities, insisting that public-sector pay settlements should be structured with this goal in mind.


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