Interest rates to stay unchanged through 2006 say analysts

A report from highly-regarded analysts the Ernst & Young Item Club has predicted that the base rate of interest will remain steady at 4.5 per cent throughout 2006.

Shaky consumer spending and a depressed housing market at the beginning of the year led to initial confidence among analysts of a cut in the cost of borrowing.

With the return of growth to at least parts of the housing market and rising energy costs fuelling inflation these predictions have lately been reversed into expectations of a rise.

But the Item Club discounted both these theories, saying that underlying fragility in the UK’s economy mean that the current rate will be held for the foreseeable future.

“The UK economy is failing to exploit the current excellent global economic conditions and remains overexposed to any fault line that could develop,” said Peter Spencer, chief economic advisor to the Ernst & Young Item Club.

The group’s prediction is bolstered by the fact that the Bank of England’s rate-setting Monetary Policy Committee unanimously voted to maintain rates at a recent meeting.

The Item Club predicted that inflation will soon begin to fall back from current levels but that uneven pressure on the economy will keep the best rate of borrowing consistent.

© Adfero Ltd

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