It is difficult to predict interest rates. The bank of England are being pulled in two separate directions.

Firstly, there is the real threat of an impending recession, due to:

• Declining house prices
• Rising costs of fuel and energy reducing living standards
• lower consumer confidence
• Natural end of business cycle

With unemployment rising and growth slowing, normally, the Bank of England would be cutting interest rates to boost spending. However, these are not normal times. The lower growth is occuring simultaneoulsy with rising inflation. For many years, the UK inflation rate has been close to the government’s target of CPI 2%. Recently it has pushed up closer to 4%. The RPI is even higher. With gas and oil prices forecast to rise some fear inflationary pressure will continue to build leading to wage push inflation (already unions are out on strike)

Therefore, this puts pressure on the Bank to increase interest rates. Given difficult choices, the Bank will probably keep interest rates the same and see how the economy develops. They are probably praying for a halt in the inexorable rise in oil prices. This would reduce inflationary pressure; also a recession would reduce demand pull inflation and enable lower interest rates.

• Interest rates explained