Interest rates on hold - but for how long?

With uncertainty over whether interest rates will rise of fall in the coming months, myfinances.co.uk brings you the latest expert predictions and recommendations.

The Bank of England's interest rate setting Monetary Policy Committee (MPC) has held at 5.25 per cent in April, it is the third month in a row rates have been on hold, but experts are predicting this month's vote was a close call.

"The MPC has decided to wait and see this month, which is wise, if a little predictable," said Trevor Williams, chief economist at Lloyds TSB Corporate Markets.

"Having said that, it's hard to see the MPC waiting too much longer before another hike. Inflation is still a concern, having risen slowly last month, and the economy is still enjoying a period of growth - with house prices and consumer spending still rising."

But not all economists are convinced another hike is inevitable.

"Today’s decision probably resulted from another split vote and a 0.25 per cent increase to 5.5 per cent next month is widely expected by the market," said Ray Boulger of John Charcol, the UK’s leading independent mortgage adviser.

"However, this is far from a foregone conclusion, particularly in the light of the voting at last month’s meeting, where there was one vote for a cut and none for an increase."

And others are even predicting that by the end of the years interest rates could even be lower than their current levels.

David Millar, head of bond strategy at Scottish Widows Investment Partnership (SWIP), predicted rates would rise in the short term, but could end the year lower.

"We anticipate that interest rates will be raised one final time to 5.5 per cent in May, though any such move should be reversed later in the year if it becomes clear that the global and UK economies are a little softer than the committee expects," he explained.

"Indeed a further cut to five per cent is possible in the first half of 2008."

In face of this interest uncertainty, mortgage experts are advising that borrowers should be very careful.

"As Bank rate is probably close to its peak borrowers who don’t need the security or comfort of a fixed-rate should consider a tracker mortgage, so as to benefit from any Bank rate falls next year," Charcol's Mr Boulger advised.

"However, there are some very competitive two-year fixed-rates on offer around five per cent, including 4.99 per cent with a £999 fee from Alliance & Leicester and for purchases only 4.89 per cent with a £1,999 fee from John Charcol.

"These will still be good value even if Bank rate falls back to five per cent, but good two-year trackers start even lower at Bank rate – 0.81 per cent, i.e. a current rate of 4.44 per cent, although to get this rate there is a 1.25 per cent fee.

"For borrowers who prefer a deal with no early repayment charges we can offer exclusive three or five-years tracker mortgages just below Bank rate and with a droplock option."