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How to Predict Interest Rates. Interest Rates Predictions - Best Strategies for Predicting Future Interest Rates UK

Interest Rates Predictions

Economics is a complex discipline, and the interaction and interrelation between the various actions that inform the overall state of the economy have the potential to confound even economists, let alone the general public.

When trying to regulate or manage an economy there is no obvious starting point, but inflation is as good as any. In any economy there will be a level of inflation that is aspired to as the central plank of its economic strategy. This level will be the ideal one that is considered to be right for the normal forces of supply and demand.

Tied into this equation is the question of interest rates. When interest rates are low the spending power of both individuals and businesses increases, because less outlay is required in order to service debt repayments. When spending increases prices rise, causing an inflationary situation.

When there is not much money being spent into circulation, on the other hand, prices and inflation go down or at least remain relatively constant. Although it is the central bank that sets the interest rate, it is in many respects a self-regulating mechanism.

Interest rates are in essence the cost of borrowing money. When interest rates are running high it means the cost of debt is higher, which will have the effect of deterring individuals and businesses from taking out loans. This creates a credit freeze. When the rates fall borrowing money becomes once again a more attractive proposition.

On the other side of the coin low interest rates make lenders less keen to lend out money, or at least more cautious as to whom they will lend to as the margins are lower and the risk involved less appealing. At the same there is also less incentive for anybody to save as the returns are less generous, although corporations will be more inclined to invest in new production.

The general movement of the economy and sometimes also geopolitical factors associated with it can be an indicator of the future progress of interest rates. Much of this will be coterminous with priorities in government policy. For example, if tackling unemployment is known to be the main priority of a particular government at a particular time then the most accurate interest rates predictions are likely to be those which point to a fall in interest rates, which can have the effect of stimulating investment and spending.

Similarly if slowing inflation is the priority interest rates predictions of an increase which will cool the economy and curb inflationary pressure are liable to be the most accurate.

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