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Questions raised over base rates

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  • 20/10/2003
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City forecasts on Bank of England base rates have been called into question by senior mortgage indus...

City forecasts on Bank of England base rates have been called into question by senior mortgage industry figures. Both Ray Boulger, senior technical adviser at Charcol, and Robert Hollinshead, chief executive of the Newcastle Building Society, disagree with prevailing City sentiment that a rise is imminent.

Boulger said: “The City’s track record on forecasting base rate rises has a success rate of well under 50% over the last 15 years, so basing mortgage decisions on the interest rate futures market might not be the cleverest strategy. The City is predicting at least one base rate rise by the end of this year with more to come next year, but we would advise people not to hold their breath.”

Hollinshead agreed: “There are a lot of unknowns out there and terrorism is one of them. If something bad happened confidence could quickly disappear. So while fundamental economics say rates should rise, I would not be at all surprised if they remained flat. The money markets are predicting 4.5% this time next year, a big hike from where we are now.”

However, he cautioned against abusing the low rates. “Although it is a challenge for first time buyers, most people can afford their mortgage, but the level of general debt is getting dangerously high. I think we have all got to be careful about the level of commitment we are giving people.”

I See p22 for a full interview with Robert Hollinshead.

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