INTEREST RATE SAGA

Forecasters still do not agree as to where interest rates will be over the next few years. There are extremes of an 8 per cent Bank base rate in 2012 being talked about down to zero if the economic situation becomes dire. Will either of these two scenarios happen?

It’s not helped by the Bank of England creating a new model for assessing their thinking thereby admitting they were wrong in the first place. At least that is out of the way and we can all move on but it is very unsettling and you do wonder if they really are on the right course now.

Much of it is going to depend on the banks themselves. While credit is difficult to get hold of to keep a business going and indeed expand it, there will be little economic recovery. Getting the cash moving round everyone will bring back confidence but is going to lead to a potential increase in inflation.

Cutting public spending will balance that and the Coalition Government are taking brave decisions to enable the recovery to jump to the next step without increasing inflation. The concern has to be this winter and next year whether there will be such a backlash from the unions that strikes will set the recovery back and that is the worst scenario - Country chaos.

When we take out a mortgage or loan we are all individually making a bet. So my advice is do your homework and try to understand the bigger picture. Whatever the mistakes of the past whether from the banks themselves as well as the Bank of England, you can be sure lessons have been learnt and it is in the interests of our economic masters not to destroy our prosperity a second time. Unfortunately we need them as well as their needing us.

What's your opinion? Please share your views in the comment section!