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With this year drawing to a close with two increases in the base
interest rate, all eyes are now turning to next year to see whether
this round of increases will continue, of if we have seen the
peak of this rate cycle.
According to the general consensus of city economists, the feeling
is that given the current economic climate, we are at the peak
of the rate cycle and that heading into the New Year rates will
remain stable due to slowing economic growth and falling inflation.
There is some doubt in this prediction though, in that there
is a possibility that higher wage deals in 2007 could put pressure
on inflation and result, which could cause the MPC (Monetary Policy
Committee) to push rates a further quarter percent higher around
February, however this doesn’t currently look likely with
around a forty percent chance according to economists.
Looking to the long term, it currently looks as though rates
will remain at their current level for the duration of 2007, giving
a stable base for the economy. Of course this prediction is by
no means definitive, as there are many things that can affect
the rate policy, but all present indicators point towards a period
of stable interest rates.
Should rates remain stable, then that will be good news for borrowers,
allowing them to plan their finances around their mortgage and
loan repayments, and lessening the worry of any further increases
which would push their monthly repayments higher.
In terms of mortgages, it can make the decision of what type
to opt for a little harder, for example in times where rates look
certain to rise then a fixed rate can be the best option, shielding
the borrower from those rises when they do happen, however this
come at a slight premium over variable rate options. If the rates
do not rise, then the extra premium is an unnecessary cost, but
a variable rate will expose the borrower to the risk of a rate
rise.
Keeping a track of the trends in base rates can help the consumer
in choosing a mortgage, however as with all financial decisions
it is best to consult an expert who will know the market well,
and be able to advise the borrower of the best option.
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