INTEREST rates are set to fall to around 4.25 per cent by the end of next year, an economist has predicted.

Jakaria Sardar, from Barclays, said that although the Monetary Policy Committee might be tempted to raise rates one more time by a quarter of one per cent, the trend was likely to be down in 2005.

He thought rates might fall to 4.5 or 4.25 per cent. "Interest rates are near their peak," he said at a business breakfast hosted by Barclays, the Bank of England and Kent Business at Eastwell Manor, near Ashford.

"It could go up a quarter but by the end of next year, we will see a number of falls. It could be 4.25 per cent or 4.5 per cent. I wish I had a crystal ball."

He saw no end in sight to high oil prices which would continue to restrict growth.

Demand from China had "gone through the roof" as capacity in Venezuela, Iraq and Nigeria had fallen. He also forecast that the US dollar would be weak for the next two to three years.

Mark Menary, the Bank of England's representative in southern England, outlined the current economic situation.

Manufacturing had been doing well in the past few months, and business investment had strengthened.

Inflation was running at around 1.2 per cent but there was evidence of upward pressure over the next year or two. Main uncertainties were world growth, house prices and the labour market.