Interest rate cuts could be put on hold

At the start of this year there were high hopes about base rate cuts amongst both borrowers and industry officials, with many expecting the base rate to fall significantly over the course of this year, and with some industry officials predicting that the base rate could fall as low as 4% or below by the end of the year. However, whilst the base rate was cut three times between December 2007 and April of this year, it seems that further rate cuts could be put on hold, as the Bank of England tries to deal with soaring inflation levels.

Mervyn King, the Governor of the Bank of England, has already had to write to the Chancellors, Alistair Darling, after inflation recently soared beyond the government’s 2% target, coming in at 3.3%. He had to explain why this had happened and what was going to be done to try and bring it back under control. However, things have since got worse and inflation levels have soared even further out of control, with some predicting that they could be higher than 4% by the end of the year.

King said that whilst he was aware of the pressures facing the economy at present steps had to be taken to reduce the rate of inflation.

He said: ‘The economic slowdown will need to be sufficient to ensure that inflation does not persist above the target.’

He added: ‘But at the same time, we need to avoid a slowdown that is so pronounced that it would pull inflation down, not just to the target, but below.’

There is now a general opinion that rates will not fall in the foreseeable future, and there is even speculation that the base rate could rise if inflation does not start to fall. One economist recently stated: ‘What is apparent from the testimonies, is that if the Bank of England does change interest rates in the near term, it will be to raise them.’

Recent Additions:

• Homeowners flock to try and sell homes
• Many people could find it even more difficult to sell their homes
• Consumers looking to remortgage could experience problems
• Majority of parking fine appeals won by consumers
• Banks make huge profits from overdraft fees