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Rates to Stabilise

Recent figures released by the office of national statistics (ONS) show that the second-quarter of 2006 saw less growth in the economy than had previously been thought, which means that a further rate rise in the next couple of months now looks unlikely.

The original estimate the ONS held for second quarter growth was 0.8%, but the final figures show that it in fact stood at 0.7%, indicating that the economy is running at a comfortable pace, and not so fast that the Bank of England needs to step in to slow things. Key behind this downward revision were lower than expected growth in the gambling sector spurred by the World Cup, along with fewer hospital admissions (as strange as this seems, it actually has a large impact on public spending).

While there was a cut in the estimated growth for the influential services sector, coming in at 0.9% growth, down from the 1% estimate, there were areas that did out-perform their estimates, such as the manufacturing sector which had performed better than first thought.

The biggest reduction from the forecasts was to what is known as the deflator – a key measure of inflation, the Bank’s Monetary Policy Committee (MPC) was worried that this was running a too high a rate, so they will no doubt have been relieved to see it come in at 2.2%, far lower than the estimated 3.4%.

When the above is combined with the falling cost of oil and therefore falling energy costs, a rise in rates before year’s end now looks remote, despite the fact that only last month it was widely held that a rate rise would come in November.

While the details of the movements of the economy on the whole mean very little to the average person on the street (assuming that the average person isn’t a financial analyst), it does have an impact on people’s day to day lives. All of the factors above effect how the MPC manages the base interest rate, and it is upon this that consumer credit rates are derived, meaning that a rise in the base rates directly makes borrowing more expensive for the consumer. With rates now looking to remain unchanged, this is good new for those with mortgages and those looking to take out credit in the short term.