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Interest rates could rise to 6%

13 June 2007
An interest rate rise for homeowners is imminent, despite the recent drop in inflation, according to experts.

A poll by the Reuters news agency predicts an 80% chance of seeing them rise to 5.75% this year, with a 30% chance they rise to 6%.

Even though there was a decrease in the Consumer Price Index (CPI) from 2.8% in April to 2.5% in May, economists are concerned that this is not sufficient to prevent another interest rate rise in the coming weeks.

The recent drop is due in part to the falling cost of home utilities, but, the Bank of England has predicted that interest rates will go back up to 5.75% in the summer.

Fuel prices, on average, have been reduced by almost 20% this year and another drop in inflation is predicted as summer fuel bills decrease.

Speaking to an audience of business leaders in Cardiff earlier this week, Bank of England governor Mervyn King warned householders that “In light of the greater availability of credit, any person or family that borrows at a variable rate should recognise that the interest rate they will pay in the future may vary.

“Obvious though the point may seem”, he said, “it is unwise to borrow so much that the repayments are affordable only if interest rates remain at their initial levels,"

While this rise in inflation could prove hazardous to home owners, those with savings can benefit from earning a higher interest on their investments.

Leanr more about savings accounts

Learn more about fixed rate mortgages