UK Base Rate

2012 Prediction: end 2012 at 0.5% – 0.75%

2012 Actual: 0.5%

2013: 0.5%

As last year, this should be the easiest prediction to make as economically at least, the UK and the rest of the world seems to still be in a bit of a muddle. Euro issues seem to have died down, but mainly because most people just got bored of them and they could rear up again at any time. The UK’s treasured AAA rating is still under threat and business leaders are starting to lose a little faith in our Chancellor.

Looking at the ever volatile interest rate markets, as of mid December the indications were still for a cut in 2014 followed by a return to 0.50% in February 2015, then up to 0.75% in June 2017 and 1% by January 2019. This will no doubt change many times again as if you recall, worries about inflation early last year showed expected increases much sooner and quicker.

Whilst three-month LIBOR has started the New Year in the same place it left off last year at 0.52%, (this time last year it was 1.09%), SWAP rates have risen quite a bit on the opening day of 2013 since the penultimate week in December.

Although the inflation noise has abated somewhat, there is still concern in some quarters over the actual medium to long term effects of the Quantitative Easing programme and whilst unlikely at this point, a late, small rise in Base Rate could help to head off future issues.

Whether or not there is any more QE remains to be seen and whilst there may be some temptation to add to the amount we have already seen, depending on general economic frailty, I think we may have seen the last of it. Obviously there will be a new Governor in charge of the Bank of England with his own thoughts and methods which will be interesting to observe.

Overall, it looks as if other tools will be used rather than the cutting or raising of interest rates over the next 12 months but I remain of the view that the next move is up and the appearance of some of the lowest fixed rates that we are ever likely to see thanks to the Funding For Lending Scheme means that this year will be an excellent time to lock in for those wanting security at good rates to avoid the unknown.

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