Mortgage
lenders have cut the rate of
borrowing even though the Bank of England (B of E) made left the interest rate at 4.5 per cent.
The effect of this means that
mortgages are available where the rate is fixed for two years at 0.3 percentage points lower than the B of E base rate. An example of this is from the Portman
Building Society who, are offering a
mortgage at 4.2 per cent.
With mortgages available so cheaply forecasters believe that
interest rates will continue to fall. The B of E warned against making this assumption in its inflation report last August.
They showed inflation would run above the target if interest
rates fell to the low levels predicted by market expects. It was this that raised interest rate expectations, and the news that Mervyn King, B of E Governor, voted against the quarter-point cut in early August.
However, Simon Tyler, of Chase de Vere mortgage management, said: "Fixed rates have been coming down for the last week or so. A fall of around 0.2 percentage points is not untypical."
The B of E predicts that if the interest rates are unchanged, growth will increase to over three per cent and inflation will remain at two per cent in the next two years. If this were to happen, it is likely that interest rates would then go up.
Simon Rubinsohn, an economist at Gerrard, said: "We suspect that inflation could climb to 2.5 per cent in the August report, which is due to be published next week.
"Significantly, since
utility bills are set to rise in September, this is unlikely to be the top of the inflation cycle."
On the other side economists at the
Royal Bank of Scotland said that growth will remain weak, inflation will stay under control and a quarter-point cut is likely next year.
