Bristol & West (B&W) economist Laurence Sanders predicts the Bank of England's base rate will peak at 5.5% by December 2005, before falling back to a rate of 4.5% one year later.
However, despite the near 50% increase in the base rate from its current 3.75% level implied by B&W's forecast, the lender still expects a soft landing for the housing market.
With unemploment low and an ongoing gap between housing supply and demand, house price inflation should hit between 10% to 12% in 2004 alone, Sanders says.
Thereafter, house price inflation rates should hit 5% in both 2005 and 2006 respectively, the forecast suggests.
Eurozone rates will not be raised as early as in the UK, chiefly because economic growth in the eurozone continues to lag the UK and US, he adds. The prospect of a UK currency referendum is touched upon with the prediction that UK and eurozone base rates will converge by late 2006 at the expected rate of 4.5%.IFAonline
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