Mortgage Interest Rates Predictions for 2008

In recent months there has been a noticeable slowdown in UK house price growth. In the US, the Housing market is stuck in the doldrums with some areas seeing falling house prices.

With the slowdown in the housing market, it is less likely that interest rates will have to rise any further.

Furthermore recent inflation figures in the UK, showed an unexpected fall in inflation to below the government’s target of 1.9%. BBC link

This fall in inflation suggests that previous interest rate increases are starting to have an increasing effect in reducing inflationary pressures.
The lower inflation was also as a result of falling food prices. The RPI measure also fell from 4.4% to 3.8%. The RPI measure is seen as a more accurate measure of inflation because it includes all housing costs.

Royal Institution of Chartered Surveyors (RICS), also recently pointed out that demand for buying a house fell at the fastest rate in 3 years.
Have Interest Rates Peaked?

With evidence of a slowdown in the housing market as well, it suggests interest rates do not need to rise any further. However, the Bank of England has been keen to maintain its anti inflationary / hawkish stance. They suggest that interest rates could still rise. They point to factors such as:

  • High levels of borrowing in the UK.
  • Relatively Strong growth in the Manufacturing sector.
  • Although house prices are not increasing as much, they are still increasing.