While there has been much talk in the press with regard to the future direction of UK interest rates, there does not seem to be an awful lot happening at the moment.  So will all of the doom and gloom surrounding the economy actually make a difference?

There is no doubt that over the next 12 months we will see a reduction in UK interest rates, but the speed of the fall and level at which they will bottom out is not yet clear – it will be dictated by what happens over the next few months.  So why are UK rates set to fall?

UK rates will fall due to a mixture of the slowing US economy, which will affect the overall world wide economy, the falling UK property market and the aftermath of the credit crunch.  With so much doom and gloom around many people are asking why rates have not yet begun to fall yet – and they are quite right to ask the question!

The reason why rates are yet to fall in the UK is because of the perceived threat from inflation and the risk which it still may hold in the short term.  A sharp reduction in UK rates could easily fuel the flames of inflation, with the oil price recently hitting an all time high – and oil a major influence on the costs associated with the calculation of inflation.

As soon as the possible threat of inflation reduces we should see the start of lower interest rates and with the economic news set to get worse in the short term, that moment should not be too far away.