Will Base Rate stay below 5% in 2009?

2009 is shaping up to be an interesting year, but hopefully not for the same reasons as 2008. The actions by the Bank of England and other Central banks has been to attempt to stabilise the global markets and right some of the wrongs in recent years.

How long this will last will depend on the length of the recession we are about to enter statistically. Most analysts tend to look forward 12 months for potential rate movements, as looking beyond this period becomes more difficult to project as there are too many variables.

At this stage the predictions are for a BBR of 1% within 3 months and 0.5% within 6 months. BBR is then expected to be held at this low rate until this time next year. By early 2010, it is hoped that the economy will begin to improve and business stimulated. With this improvement, demand for money will increase, and therefore BBR will again rise to keep the economy and inflation under control.

As to when BBR is likely to be at or above 5% is not in current forecasts, but the suggestion by those in the know are for BBR around 3 to 3.5% in the next 24 to 36 months. The Swap rates set on 20 January 2009 has 5 year money at 3.01%, suggesting longer term rates should stabilise. This is providing the economy doesn't over react and inflationary pressure force the banks to increase BBR more quickly as a control measure.

This will natrually effect buy to let mortgages and residential mortgages but it simply depends on which way the rates go!