Interest rates: News and predictions

Rates were unchanged again at 0.50% in June - and they are very unlikely to go lower. The Bank of England's June meeting (4 June) was watched only for news on the progress of its quantitative easing policy. It signalled no increase in QE.

So when will rates be raised again?

The Bank of England's quarterly report suggested it could be a while with inflation expected to remain low for another two years. Inflation fell again in April but by less than expected in May. And economists took minutes from the MPC meeting on 20 May as further confirmation of low rates remaining well into 2010. MPC member Kate Barker echoed this view on 10 June.

However, markets are getting twitchy. Some very nascent signs of economic green shoots has caused a surge in City traders betting on a rate rise before the end of the year, although this remains a long-odds punt. This trend was also reflected in a sharp increase last week in swap rates - a market banks use for borrowing and lending money over a fixed period of time. It attempts to anticipate future interest rates.

The hawks were given further support on 16 June when CPI inflation for May was reported at 2.2% against an expectation of 2.0%.

Captial markets in the US also became more hawkish last week, pricing in a rise in rates by the Fed before the end of the year.

The problem is that inflation fears are growing. The oil price has more than doubled in recent months. That, coupled with an improvement in economic fortunes and huge stimulus packages, has raised concerns that rates may need to rise to quell rising prices. More here posted by Canadian Funding Corp.