Interest Rates Predictions

By: EconomyWatch Content   Date: 4 November 2009

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Inflation and interest rates predictions are gaining importance as these rates in most developed countries are at record low (as of November 2009). Interest rates are a concern for most of us since fluctuations in interest rates affect personal finances. The mortgage crisis in the US is hurting the overall economy. Mortgage rates in the US have nosedived to record low levels, as the housing market is struggling. Meanwhile, countries that have substantial trading activities with the US are hurt. Hence a reversal in the interest rate trend is expected. Many economists are of the opinion that the global economy in general and the US economy in particular will witness modest recovery during 2010 and a rapid recovery during 2011.

Interest Rates Predictions for the UK 

The United Kingdom has reported a 0.4% decline in GDP for the third quarter of 2009, as compared to the market expectation of 0.2% growth. This means, the country is not going to make any major reversals in the interest rate in the short term. Moreover, Mervyn King, the Governor of Bank of England is determined to pump more money into the economy. This means interest rates are unlikely to rise in short term.

Given these circumstances, one can predict that the UK government will raise rates any time to boost their economy. However, the popular prediction is that if the inflation remains subdued, there will not be any interest rate rise during 2009 and 2010. The markets predict that the rates will rise rapidly if inflation increases due to numerous reasons, including oil prices and quantitative easing. ‘Quantitative easing’ refers to the money the government pumps into the economy as a monetary policy measure.

Just like the UK economy, the US is also expected to witness a modest rebound during 2010. There are signs of a recovery in many markets. For example, financial analysts believe that the mortgage rate has reached the absolute bottom recently and would increase in the coming months. It is very difficult to do interest rates predictions a percentage point increase in rates is expected for both the economies during 2010.


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