Interest rates 'have peaked' at 5.75 per cent

Asset Management firm New Star has predicted that interest rates have reached their peak at 5.75 per cent.

The company made its forecast after minutes from the meeting of the monetary policy committee (MPC) in August showed that it was unanimous in its decision to hold rates at 5.75 per cent.

It was also recently revealed that inflation was 1.9 per cent in July – a drop of 0.5 per cent from the previous month. This is the first time since March 2006 that inflation has been below the government's target of two per cent.

Commenting on the release of the MPC minutes, Simon Ward, economist at New Star, said: "Coupled with yesterday's dramatic inflation drop and a surprise further fall in average earnings growth to a four-year low, this news strengthens our belief that interest rates have peaked for the year at 5.75 per cent."

However Andrew Montlake of Cobalt Capital was more cautious, saying that the inflation drop was prompted by short-term factors and there is "every chance" it could move above two per cent in the coming months, meaning that another interest rate rise is still a possibility.

He added: "When the MPC voted to keep rates on hold earlier this month, we urged borrowers to be vigilant. With the financial environment continuing to be so volatile, our position remains the same."

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