Jim Armitage, Evening Standard
15 November 2006
Homeowners could be spared a further interest rate rise after a major report from the Bank of England today suggested the spectre of soaraway inflation is fading.
The Bank's monetary policy committee is charged with keeping inflation at a 2% target, using interest rates as its tool. Earlier this month, it increased the cost of borrowing to 5% for the first time since 2001, citing concerns about the potential for rising prices.
In today's Quarterly Inflation Report, Bank boffins calculate inflation will essentially be about 2% by the middle of 2007. Official consumer price inflation (CPI) figures earlier this week came in at 2.4% - far lower than the 2.6% most economists expected.
Bank Governor Mervyn King today admitted he too was surprised at the number. He added: 'Our central view is that CPI won't get to 3% in the next few months.' It would, however, edge up to about 2.7% at the end of this year before receding to the 2% target about six months earlier than previously estimated.
King said uncertainties remained around the Bank's inflation target. He said: 'The main risks to the inflation outlook in the medium-term surround the behaviour of pay growth and any recovery in profit margins as energy price inflation falls.'
Interpreting the report, ING economist James Knightley said: 'The odds are narrowly in favour of no further rate hikes.
The report stressed the importance of closely monitoring the f low of news on the economy, highlighting that the MPC has no long-term view on what it should be doing with rates.
That means the rate-setters will have paid close attention to today's weaker-than-expected wage and employment data. Annual average earnings growth fell to 3.9% in the three months to September against 4.2% in August. www.Mortgage-Shop.co.uk comments that this is obviously great news if this all plays out, "raising the interest rates mainly due to fuel and energy price rises really doesn't seem at all appropriate" to track the best rates today logon to the webiste regularily.
