Mervyn King, the Governor of the Bank Of England has commented that the country may only need one more 0.25% increase in interest rates to settle things down.
It is likely that the September review of interest rates will push the base rate to 5% because Mr King believes this rate will allow the country to maintain a 2% inflation figure, in accordance with the Bank Of England's target rate. If Mr King can get inflation under control at around 2%, it will stabilise the general economy and enable interest rates to be left alone.
Our View
We have predicted for some time that interest rates will be around 5% by the end of the year and 5.5% by the middle of next year. Whether or not the increase from that point will obviously depend on many factors such as house prices and general inflation.
Over the last couple of months we have seen house prices stabilise and slightly fall. But, consumer spending is still increasing and this is why interest rates rose at the start of August.