Will Base Rate stay below 5% in 2009? - 21.01.2009
Author: Mike Freeman Posted on: 21 January 2009
2009 is shaping up to be an interesting year, but hopefully not for the same reasons as 2008. The actions by the Bank of England and other Central banks has been to attempt to stabilise the global markets and right some of the wrongs in recent years.
How long this will last will depend on the length of the recession we are about to enter statistically. Most analysts tend to look forward 12 months for potential rate movements, as looking beyond this period becomes more difficult to project as there are too many variables.
At this stage the predictions are for a Bank of England Base Rate (BBR) of 1% within 3 months and 0.5% within 6 months. BBR is then expected to be held at this low rate until this time next year. By early 2010, it is hoped that the economy will begin to improve and business stimulated. With this improvement, demand for money will increase, and therefore BBR will again rise to keep the economy and inflation under control.
As to when BBR is likely to be at or above 5% is not in current forecasts, but the suggestion by those in the know are for BBR around 3 to 3.5% in the next 24 to 36 months. The Swap rates set on 20 January 2009 has 5 year money at 3.01%, suggesting longer term rates should stabilise. This is providing the economy doesn't over react and inflationary pressure force the banks to increase BBR more quickly as a control measure.
Naturally all of this is going to have an effect on Buy to Let mortgages and the suggestion at the moment is to get into a longer term fixed rate if possible.
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Comments
Author: IAN HAMILTON
Date: 21 January 2009 21:25
Comment: The BBR is a tool the BOE uses to try to control inflation. Generally when inflation starts to rise so do interest rates in an attempt to cool inflation and visa-versa. Given that inflation figures are a year on year comparison. We are now in a period of falling inflation, due partly to a dramatic fall in the price of oil compared to last years high and the difference is likely to increase until we pass the twelve month period since the price of oil peaked last July. What will happen when oil bottoms-out and starts to rise again. Are we than in for a period of soaring inflation and the corresponding interest rate rises? Should the BOE consider raising its 2% target inflation rate to cut the economy some slack with regard to interest rates, when it comes to pay back time.
Author: Mike Freeman - Mortgages For Business Sevenoaks
Date: 22 January 2009 17:20
Comment: I agree that they may need to review the target inflation rate and raise the bar to allow a little more flexibility. I think it is a case of getting some positive economic data, but not too positive so that any Gov or BoE reaction stifles the recovery. As for oil, we have come a long way since the $147 peak last year. However, at the same time you would have achieved $1.98 per £1. As at today, the $ is trading around $1.37 or 30% lower, so the benefit of falling oil prices isn't quite as good as first appears. Hopefully the exchanges will recover in the near future to ease pressure on potential increases on fuel prices.