Rate rise gloom in money markets
HOW will interest rates go? City economists suggest the base rate will rise from 3.5% to 4.25% by the end of 2004.
A handful, such as John Butler at jumbo bank HSBC, see them going no higher than 4%. But a few see them rising to 4.75%.
The money markets take a gloomier view. They predict rates at 4% by year end, 5% by next summer and 5.5% by early summer 2005. That suggests the risk of a house price crash.
Bank of England Governor Mervyn King and the monetary policy committee are widely expected to raise rates this week.
Their 0.25% cut in July was on the back of economic data that later proved incorrect. They are most concerned about the return of bubble conditions in the housing market, which had begun to show healthy signs of cooling earlier in the year.
Economists argue that much depends on Government borrowing. If that soars, rates are likely to go higher.
Chancellor Gordon Brown made it clear last night that he would support the Bank of England if it decides to raise rates.
Brown said he did not want to 'pre-empt' the bank's decision. He added: 'We put stability first, we will take whatever action is necessary to ensure the stability of the British economy. That's the best thing I can say to British homeowners and businesses.'
He said the economy is 'strengthening'.
