Interest Rate Predictions John on 30 Jan 2009 01:54 pm
Bank Of England Base Rate Predictions
The Bank of England Monetary Policy Committee meets again next week (5th Feb) to determine what level to set the base rate at. Like many I’m now keenly following the latest news on interest rates as it’s having a noticeable effect on my monthly outgoings, so I thought I’d share my predictions on what the bank of England base rate is likely to be in the coming months.
In January many economists and business leaders were expecting the Bank of England to drop the interest rate by a whole 1%, instead however they elected for a 0.5% drop, which I believe is a sensible choice. Yes we still need a lower rate to stimulate the economy, but too many drops that are greater than 1% could harm what little confidence is left in the markets and perhaps more importantly we will reach 0% very quickly, at which point the only option left is printing more money, which if it comes to that, will probably do more harm than good.
Therefore my bank of England base rate prediction for February is a drop of 0.5%. I predict we will then see a drop of 0.5% or even 0.25% in March, followed by a possible further 0.25% drop in April taking us down to a low of 0.5%. I don’t believe the MPC will wish to take the interest rate below 0.5% if it can be avoided. Over the longer term I still more or less agree with Tristan’s earlier interest rate predictions.
If my predictions are right it’s more bad news for savers, but great news for those of us with tracker mortgages.
So, what do you predict?
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on 30 Jan 2009 at 2:09 pm 1.Tristan said …
I agree with your predictions for next month, I think that the rate will come down to 1% next month, though I don’t think it will come down again the following month.
I think once it gets to 1%, the Bank of England, and also the government will want to see what effect the low rates are having on the economy, so will probably wait until April/May, after the first quarter GDP figures are released, so that they can see what the effects have been.
If growth is still negative, and that will be three quarters in a row, then I think the govt and the Bank of England will work together to stimulate the economy even more than they are doing - heaven knows what that will mean, most likely more public spending and borrowing to pay for it!