Bank of England base rate needs to be increased

A member of the powerful Monetary Policy Committee has recently stated that it is essential that the base interest rate is increased in order to keep a lid on spiralling inflation, which could otherwise damage the economy. Andrew Sentance has voted to increase the rate for the past several months, but with the majority of members voting to keep the rate on hold the base rate has remained at its rock bottom level of 0.5 percent for the past nineteen months.

Sentance has said that the base rate should be increased gradually in order to try and curb inflation levels, which are currently way over the 2 percent target set by the government. Sentance was making a speech in London when he expressed his views, and minutes of Bank of England meetings show that he has voted for increases in the base rate for the past few months.

Between June and September Sentance was the only member of the Monetary Policy Committee that voted for an increase, but with all others voting to keep rates on hold the base rate remained static. Its current level is the lowest in the history of the Bank of England, which spans over three hundred years, and it was reduced to this level under the former Labour government amidst hopes that it would help to aid the failing economy during the global financial crisis and the recession.

In his speech Sentance stated: “I have voted for a rise in interest rates at recent MPC meetings — as a start to a gradual movement away from the exceptional level of monetary stimulus put in place to combat very difficult economic conditions last year. And I continue to believe that this is the right policy for the situation the UK economy currently faces.”

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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.’

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No move for base interest rate

The Bank of England has announced that the base interest rate in the UK is to be kept on hold once again, which means that this will be the eighteenth month in a row that the base rate will have been kept at the record low of just 0.5 percent. The announcement came after the August Monetary Policy Committee meeting.

The decision to keep the base rate at 0.5 percent, which is the lowest in the history of the Bank of England, has sparked speculation that the Monetary Policy Committee is not all that concerned about rising inflation, which at present is much higher than the government target of 2 percent but is expected to fall closer to its targets level over the course of the year.

The central bank also said that the quantitative easing programme was still on hold. The programme was started by the former Labour government, and so far £200 billion has been pumped into the economy through this scheme. The MPC has now said that whilst the scheme will be kept on hold for now there is still scope to use it again in the future should it be necessary.

In the meantime many industry groups have welcomed the decision for the bank base rate to be kept on hold, with officials stating that this could help to revive the economy. The British Chambers of Commerce said that the cuts that the coalition government had made to address the public deficit would impact on the economy, so keep the base rate on hold had been a necessity.

David Kern from the BCC said: “The MPC made the right decision. The tough deficit-reduction measures announced in the Budget, although necessary, will inevitably increase the threat of a UK economic setback. Given the precarious economic background, it is absolutely vital that the MPC maintains the current low level of interest rates until the second quarter of 2011 at the earliest.”

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Students in line for loan rate shock

It has been claimed that many students that are studying at university in the UK could be set to face a loan rate shock, with interest rates on student loans set to increase as a result of the rise in inflation levels. Students already face a tough time when it comes to being able to afford everything they need whilst studying at university, but if interest rates do increase the situation could get even worse for many of those studying in the UK.

This week it was reported that the level of inflation had increased to 3.4 percent, which is 1.4 percent higher than the government’s target of 2 percent. The increase in inflation was said to have been driven by price increases on things such as petrol, food, and energy compared to last year when prices on these products and services were falling.

The interest rates on student loans are increased by the Student Loans Company each September based on the level of RPI inflation seen in March of that same year. According to reports around three million students as well as graduates could see their rate of interest increase when September comes around. The rate of interest that students are paying on loans can vary based on when the loan was taken out.

In addition to facing increased interest rates on loans students are also up in arms about the lack of clarity over student funding and university fees from the three main political parties in the run up to the general election. Student unions have accused parties of failing to provide clarity over these issues and hiding behind a review that was carried out last year in order to avoid having to go into too much detail about their policies with regards to this matter.

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No increase in base rate again

For the ninth month in a row the Bank of England has decided to keep the base interest rate on hold, leaving it static at its lowest level in history, which is just 0.5 percent. The decision to keep the base rate so low has come as no surprise to most industry experts given the ongoing problems facing the economy and further threats of job losses. The announcement was made following the December Monetary Policy Committee meeting, which was held last week.

The Bank of England also announced that it would continue with its quantitative easing program to try and revive the economy, having announced last month that the plan was being extended to a total of £200 billion, reflecting an extension of a further £25 billion. Originally the maximum amount earmarked for quantitative easing had been £150 billion. No clue was given as to whether the scheme would be extended further next year.

Many industry experts have slated the quantitative easing programme, stating that it is clear that the plan is not having the desired effect on the economy but the government is continuing to use the programme to try and ease the economic problems. It is thought that when the current programme runs out in January the government will announce whether it plans to extend the scheme further.

In the meantime, an economist from Global Insight, Howard Archer, said that it was likely that the Bank of England would keep the base rate on hold at 0.5 percent until late next year, and even predicted that it could be 2011 before the base rate was increased. He said that fears over unsustainable recovery meant that it was far too soon for the government to think of policy tightening.

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Bank holds interest rates

The Bank of England has held interest rates at 5.75 per cent for the fourth month in a row.

The decision, announced at noon on Thursday, comes as no surprise with many analysts predicting such a freeze well in advance.

Ongoing uncertainty in world financial markets and the rising price of oil led members of the Bank’s Monetary Policy Committee (MPC) to keep rates at their current peak.

That will mean prolonged misery for many homeowners, struggling to cope with high mortgage payments.

Chief executive of the National Association of Estate Agents (NAEA), Peter Bolton King, was critical.

He said: “I would have hoped that the Bank of England would have considered this month’s rate movement carefully as confidence in the market needs to be restored and a relaxation of interest rates would do just this.

“The last 12 months has been an extremely busy period for the housing market and consumers are crying out for reassurance.”

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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.”

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