BOE Will Maintain Low Interest Rates

by Mark Johnston

The Bank of England is looking about set to keep interest rates at a record low this Thursday, presumably they will sight the need to stabilize the fragile economic recovery and not spark a rise in prices. A stable and conservative approach over a risky strategy, maybe.

The pound has been struggling too. Tuesday, 8th March, it eased to a five week low against the Euro on the back of expectations that the ECB may, by as early as next month, start tightening monetary policy.

Sterling was trading at 0.1 percent lower than its previous high of $1.6344 from last week. This fact and the high oil prices have kept the pound subdued and will impact the BoE’s decision to keep interest rates as they are or to raise them. At least not right now.

The BoE monetary committee will meet this week and decide, if they can come to a general agreement, on whether a change to the 0.5 percent base interest rate is needed or prudent. There is discourse on this committee, with a small division requesting an increase to the base rate, citing continued impacts on inflation and pressures herein.

Others on the monetary committee are quite happy to wait and see what the early figures say regarding first quarter growth on Gross Domestic Produce (GDP). Investors are betting the Bank will hold out on action until May or June but this is where the economic picture becomes a little clearer and where decisions need to be made and risks taken. I believe that the rate will rise but very slowly this year but will remain low for many years.

Only once before, since the body became independent in 1997, has the BoE altered the base rate figure before the governments budget has been unveiled on the 23rd of March. And then, the only reason the BoE acted was to slash rates and launched its unprecedented quantative easing programme, sum totaling nearly 200 billion pounds. I think, it is now widely acknowledge that they took corrective action at the right time.

The debate, as Mervyn King sees it, is around whether maintaining the temporary pressures on inflation will assist the economy or whether the alternative of tighter rates may very well choke the recovery to death. Again, analysts and experts in this area believe that higher rates could very well derail the economic progress that is taking place.

This represents a stark picture for homeowners all over the country and as this continued fall in housing prices continues from last month into this month, homeowners are asking serious questions of the BoE. While this is dire news for those looking to sell, on the other hand, those looking to buy are in good position and may buy their first homes soon depending on what the monetary control committee come out with this Thursday, watch this space.

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