###/GBP/POV: WILL RISE IN 3-MONTH STERLING....>

LIBOR: ###/GBP/POV: WILL RISE IN 3-MONTH STERLING LIBOR PUSH UP MORTGAGE RATES?

- 3-month sterling Libor fixing rose 4.8bps last week to 0.65688% the highest

level in 5.5-years and up from around 0.52% seen at the beginning of the year.

- As expected this has led to rise in GBP 2-yr swap rate and due to the

relatively strong correlation this has with UK mortgage rates should of meant

they would rise as well, but this has not happened. The 2-yr fixed mortgage rate

hit 1.61% in November, but has since slipped to just 1.48% in February with the

BoE citing competition in the mortgage sector as the main reason for the fall.

- The spread between the 2-yr swap rate and the average 2-yr fixed rates has

steadily narrowed this year and is currently 44.8bps the lowest since Jun 2008.

- If 3-month Sterling Libor continues to rise (and should do as BoE is expected

to hike in May), then high street banks are likely to start feeling the pressure

to raise rates on mortgages and loans in the near term. If this does happen then

more disposable income would be spent on interest repayments just as real wages

are expected to become positive. Could this change the views on the MPC to not

raise base rate so quickly as consumers start to feel effect of higher rates?