Financial Market Update
Colin Payne : 07 February 2011
The main topic this week is the interest rate decision due from the Monetary Policy Committee (MPC) on Thursday, with many economists not ruling out an increase in rates. An influential panel of economists dubbed the ‘shadow’ MPC has increased pressure on the MPC by suggesting bank rates should increase from 0.50% to 1%. However, the Governor of the Bank of England, Mervyn King, has made it known that he does not foresee interest rates increasing until the UK economy shows more consistent signs of recovery. That said, two members of the committee voted for an increase last month (albeit before they were aware of the GDP figures), and it will only take three more members to sway in their direction. It is becoming increasingly more difficult to predict when we are likely to see an increase, with manufacturing figures pointing to a recovery in January but consumer confidence slumping in the same month.
In my view there is every chance that there could be an increase by May, when the MPC will have Q1 GDP figures and quarterly inflation report. If the former has recovered and the latter indicates that inflation will continue to increase, I think an increase is certainly on the cards. The silver lining at present is that oil prices have fallen back approximately 3% from their peak last week, but this fall needs to continue for it to have any impact on factory gate prices, not forgetting of course the price of petrol on the forecourts.
The money markets are certainly pricing in an increase in interest rates, with a large increase of around 0.30% in SWAP rates over the course of the last 7 days. Two and three year SWAP rates are at their highest for a couple of years, with five year SWAPs at their highest for 12 months. Most lenders are starting to increase their fixed rates with the exception of one or two, notably The Mortgage Works (an intermediary only lender and subsidiary of Nationwide Building Society) whom have indeed reduced rates.
For current advice and recommendations on the best mortgage deals, contact Chapelgate now (020 7722 6777) to ensure that you get the best value mortgage deal for your personal requirements.
Colin Payne
CHAPELGATE
| Financial Market Update | A Confident Start to 2011 |
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