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When will UK base rates rise?

Yesterday's decision to hold UK base rates at 0.5% is the 17th month at which rates have remained at this level. Last year many economists were expecting a more prosperous 2010 for the UK economy and indeed a number had suggested that UK base rates could rise in the latter part of 2010. However, more and more analysts are now moving back their predictions for a UK base rate rise with many now looking towards the second quarter of 2011.

While ultimately we could see factors come into play tomorrow which are maybe not as prominent as they look today, it is highly unlikely that UK base rates will rise until potentially the second half of 2011. The reduction in the UK public sector budget and tax rises will take much of the steam out of the UK economy and indeed there are some concerns we could slip towards a double dip recession. Whether this is the case or not remains to be seen, but this is a very precarious and a very difficult stage of the UK economic cycle.

However, even though UK base rates are likely to remain at 0.5% for the foreseeable future it will be liquidity, the economy, risk factors and competition in areas such as the mortgage and loan markets which will dictate the future rates that customers will pay. Low UK base rates, while very welcome, are not having the same impact today as they would have done in a more traditional economic downturn.

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