Mortgage holders breathe a sigh of relief over base rate

Many mortgage holders around Britain will be breathing a sigh of relief this week after the Bank of England announced that it was keeping the base interest rate on hold at just 0.5 percent. This is the 22^nd month that the base rate has been at this record low, leaving the base rate at the lowest level that it has been in the three century history of the Bank of England.

The Monetary Policy Committee has been under increased pressure from various industry groups because of the soaring rate of inflation, which has rocketed to way above the 2 percent target set by the government. However, the committee has also taken into account the continued fragility of the economy, and has therefore decided to keep the base rate at the level it has been at for nearly two years.

There were no further plans for Quantitative Easing announced following the February meeting, which also came as no surprise to most industry officials. It is not yet known how the decision amongst MPC members was split. However, in the January meeting there were two members that voted for a rate increase and one that wanted to see the QE scheme extended.

A spokesperson for the manufacturing group EEF said: “The MPC is right to hold off on rate rises for now as an increase will do little to alter the path of inflation in the short term, which is being driven higher by commodity prices and tax. The contraction across the economy in the final months of 2010 may well have been a blip, but as the bigger risk now appears to be growth, the MPC should continue to hold steady until the picture becomes clearer and the economy is firmly back on an upward track.”

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Record low base rate remains static

For the past eighteen months the base interest rate in the UK has stood at a record low of 0.5 percent, which is the lowest it has ever been in the history of the Bank of England, which spans over three hundred years. It has now been announced that the base rate will remain at this record low for a nineteenth month, with a decision to keep the base rate at 0.5 percent being made after the October Monetary Policy Committee.

Although one member of the MPC has been calling for the base rate to be increased for the past four months according to the meeting minutes the fragility of the economy has been taken into consideration, hence the decision to keep the base rate at 0.5 percent. Andrew Sentance, the MPC member that wanted to increase rates, said that this was necessary in order to keep a lid on inflation.

For homeowners that are on variable rate mortgages the decision to keep the base rate static will come as good news, as it will help them to avoid costly repayment increases, which many may struggle to keep up with in the current financial climate.

The Bank of England said that it is vital to stimulate the economy by encouraging spending, and this is why the interest rate needs to be kept low. The central bank said that this had to be a priority over inflation, which is currently 1.1 percent over the 2 percent target set by the government.

The Bank of England also said that it would not be extending the quantitative easing scheme, which has already seen £200 billion ploughed into the economy.

One economist said: ‘So far the effects of QE in stimulating the wider economy have not been impressive. The bank sector remains weak and unable to increase lending to companies. There are dangers that further QE could lead to major new problems rather than leading to economic recovery.’

Tags: Monetary policy, Monetary Policy Committee, interest rates, monetary, interest, record, uk, bank of england

Interest rates on hold again

Earlier this month saw the September Monetary Policy Committee meeting took place, and following the monthly meting the Bank of England has announced that the UK base interest rate is to be kept on hold for yet another month, staying at its all time low level of just 0.5 percent. Read more

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UK interest rates make history

Over the past week the interest rate in the UK has made history by falling to an all time low of just 1.5 percent, which is its lowest since the Bank of England was founded over three hundred years ago. Read more

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Predictions of further interest rate rises fall

Earlier this year, following July’s 0.25% interest rate rise in the UK, many economists and analysts in the UK predicted that there would be another interest rate rise before the end of the year.

Interest rates have gone up five times since August of last year, with the series of 0.25% interest rate rises taking the base rate from 4.5% to 5.75%. Another 0.25% rise, as predicted by these industry experts, would have taken the base rate to 6% – it is already at its highest in over six years.

However, many industry experts appear to have changed their minds in light of the current turmoil that is hitting the mortgage markets, and following the credit crunch that is having global repercussions the number of analysts predicting a further interest rate rise has fallen. According to reports only one fifth of economists and analysts now believe that the interest rates will rise again this year.

The drop in the number of experts predicting another rise is in part the result of a recent statement that was released by the Monetary Policy Committee following its last meeting early in September, where it was decided that interest rates would remain on hold. The MPC claimed in its statement that its two main reasons for leaving interest rates on hold were that CPI inflation was now within government targets, and also because of the effect that the credit crunch could have upon the industry.

Howard Archer, an economist at Global Insight, stated: “We now no longer expect interest rates to rise to 6 percent in the fourth quarter, but instead anticipate that the Bank of England will sit tight for an extended period. We suspect that growth will lose momentum over the coming months, and that underlying inflationary pressures will gradually abate. This will become even more likely the longer that the current financial market turmoil continues.”

Tom Smith
16th October 2007

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Worries over interest rates from 40% of consumers

According to a recent report around 40% of consumers in the UK are concerned about further rises in interest rates, with many already having been hit hard by rising repayments on their variable rate mortgage.

Interest rates have already risen five times since last August with a rise of 0.25% each time, taking the base rate from 4.5% last August to 5.75%, and reflecting a total rise of 1.25% within the period of a year.

Although inflation has come down to within the government’s target of 2% recently, many consumers fear that the next Monetary Policy Committee meeting will result in yet another interest rate rise, which could make matters even worse for those that are already struggling to keep up with repayments.

The rising interest rates have affected many financial areas, including resulting in an increase in repossessions as the result of many consumers being unable to keep up with repayments on their mortgages. Fixed rate mortgages have been taken up by many consumers to try and combat the problem of rising interest rates, and the Council of Mortgage Lenders stated that a record number of fixed rate mortgages were taken out in June of this year.

The recent survey was carried out by Intelligent Finance. According to the research four out of every ten consumers are very concerned about a further rise in interest rates, as they feel that they are not covered or prepared for yet another rise in repayments. Officials from Intelligent Finance state that consumers must take preventative action to try and ease the pressure of another interest rate rise by tightening the purse strings where necessary, and making every penny count.

One official from Intelligent Finance stated: “With interest rates on the rise and purse strings tightening, it’s important to make every penny work as hard as possible.”

Tom Smith
6th October 2007

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No rise for interest rates

The Bank of England has left the UK base rate untouched at 5.75 per cent.

Today’s announcement from the Monetary Policy Committee comes after five consecutive rises since August 2006, each of one quarter of a per cent.

“An interest rate cut was unlikely this month as there are, as yet, few signs of any serious damage to the real economy from the upheaval in the money markets,” said CBI chief economic adviser Ian McCafferty.

Homeowners who faced increased mortgage repayment costs and a recent fall in house price inflation are likley to welcome the news.

The rises in interest rates may have had a direct effect on house price inflation, which fell last month from 11.4 per cent in August to 10.7 per cent in September, according to the Halifax.

Martin Ellis, chief economist at the bank, commented: “September’s price fall is consistent with the normal behaviour of the market during a slowdown.”

Tags: Monetary policy, monetary, United Kingdom, house price, slowdown, uk base rate, rate

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.

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