Bank was split over rate rise

The recent freezing of interest rates caused a split within the Bank of England, with two Monetary Policy Committee (MPC) members voting in favour of a rise.

Minutes of the meeting in February have revealed that the vote was split 7-2 in favour of freezing rates but the divide means that the future for borrowers remains uncertain.

Those with a mortgage, credit card or loan could still see interest rates rise, with many people likely to suffer as a result if they do not have the financial clout to withstand another increase.

MPC members decided to wait and see what effect the previous three rate rises would have before moving ahead with another.

“It would take some time for the full effects of the past tightening to be seen. It was difficult to judge whether, and if so by how much, policy might need to be further tightened to keep inflation on track to meet the target,” the minutes read.

The previous rises came in quick succession, with rates jumping from 4.5 per cent in August to 5.25 per cent in January.

It appears that interest rates are likely to rise again in the coming months as the MPC attempts to bring down inflation which is currently running well above the government’s target of two per cent.

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BoE: ‘Interest rate future uncertain’

We are living in an age of uncertainty when it comes to interest rates and this could have a big effect on savers and borrowers.

The Bank of England (BoE) has revealed in its quarterly inflation report that there is “considerable uncertainty” over inflation rates in the short and medium term.

It comes following a recent decision by the BoE to freeze interest rates at 5.25 per cent, which followed three rises since August 2006.

“The [interest rate setting Monetary Policy] Committee noted at its February meeting that the central projection, under the assumption that bank rate followed market yields, was for inflation to settle around the target in the medium term, though the near-term profile was unusually volatile,” said the BoE report.

“Moreover, there was considerable uncertainty about the path of inflation, both in the near term and further ahead.

“Given that outlook, and bearing in mind the balance of risks, the committee judged that no change in bank rate was necessary at that meeting to bring CPI [consumer price index] inflation back to the target in the medium term,” it noted.

People who have taken out a mortgage or a loan need to keep a close eye on interest rates in the coming months, with many industry figures predicting two more rises of 0.25 per cent.

Borrowers should always ensure that they are financially strong enough to deal with a rise in interest rates.

Tags: rate, Consumer Price Index, medium term, committee, Monetary Policy Committee, UTF-8, market