Rate Hold May Signal Imminent Cut 14/01/2005

For the fifth month in a row, interest rates have been held at 4.75% by the Bank of England, prompting strong speculation among mortgage lenders and economists that they may be cut next month.

The decision was of little surprise, following a set of disappointing retail sales figures before Christmas, a weakening of the housing market and factory figures that show UK manufacturing could be heading back into recession.

Some mortgage lenders have already started to factor a rate cut into their calculations.

Ray Boulger of Charcol, the UK's leading independent mortgage broker, said: "The interest rate futures and swaps market, off which fixed rate mortgages are priced, are predicting base rate has peaked and are factoring in a fall, certainly by the end of the year. A reduction increasingly looks like the next move."

Roger Bootle, an economic adviser at Deloitte, said "I believe that interest rates will fall to 4% by the end of this year, before dropping to 3.5% in 2006.

However, the National Institute of Economic and Social Research said yesterday its estimates pointed to economic growth of 3 per cent in the full year 2004 and said it saw no reason for a reduction in rates, based on improved prospects for 2005.