I have just came off a conference call with a major UK bank. Their view is that UK interest rates will drop 1% to 4.75% and EU rates 0.5% lower to 3.5% in 2008 as credit crunch starts to impact eurozone growth. However, as we move into 2009 they then expect an upturn in interest rates via imported inflation from India and China where there is both significant wage inflation ad strengthening currencies. 2008 maybe a good time to fix interest rates if there forecasts come true. They expect the UK property market not to be significantly affected like the US largely because the rate of new build relative to population is half that of the USA and there are significant shortages in many segments such as starter homes. The one exception is upper end city centre flats where there is significant oversupply. They expect about 10% softening in prices in 2008 for this sector but the rest of the market should be relatively unscathed - maybe 2- 3 % reduction. Many Asian economies use the $ as a reserve currency but its status is now being questioned by central banks. Consequntly the $ is expected to remain under pressure and $/£ could reach 2.15 and Euro /$ 1.50 near term although there expexctation is that $ should come back to about $2/£ next year once this overhang is worked out into the market.

My cycnical view is that you can listen all you want to these banks but their view is no better than yours or mine. I'm pleased to say that since I have taken an interest in interest rates over the last 6 years my predictions on movements have always been correct. I would look at 5 year and 10 year bond yields as an indicator! Regards

Hi Neil That sounds like a pretty good and useful summary to me. cheers

Rate decision is today - and they will remain on hold until early next year, that seems to be the consensus view anyway.