Interest Rates Hold at 0.5%

by Mark Johnston

On Thursday, the Bank of England maintained the startling base rate of 0.5 per cent.  This should come as no surprise to the readers of 

With the struggling pound and the weak progress of the pound against other currencies, the Monetary Policy Committee has decreed that the base rate should not change.  This marks the 25th month running that the committee has decided against a change. 

What is a surprise is that the bank decided against increased quantitive easing.  There is some disagreement in the committee, with a small division requesting an increase to the base rate, citing continued impacts on inflation and pressures within this market.

Other members of the monetary committee seem quite happy to wait and see what figures say regarding 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. 

Inflation rose in February to 4.4 per cent and continues to rise, boosted by rising commodities prices.  Oil is also a contributing factor; the price is rising steadily driven by a higher demand within Asia and by supply concerns from the recent conflicts in the Middle East.  To keep inflation in check the Bank of England has a job to keep inflation in check by raising rates.

Jeegar Kakkad, economist at manufacturers’ organisation EEF said “The Bank is right to look through the short-term rises in inflation and continue holding fire on rates for the time being,”

“The current combination of unrest, upheaval and uncertainty we are seeing around the world poses significant risks to growth, whilst, at home, the full effects of fiscal tightening and the squeeze on consumers is still to be felt.” 

A comment endorsed by the British Chambers of Commerce (BCC) which said “Businesses will welcome the MPC’s decision,” said BCC chief economist David Kern, who called for any rate rise to be delayed until next year.

“Premature rate increases will have negative effects on growth and jobs. With wage increases remaining subdued, we strongly urge the MPC to hold its nerve and avoid taking any action that may risk derailing the recovery.”

There is a section of market experts that believe that the BoE may take the decision to raise the base rate too quickly and strangle the growth they expect. 

There are indicators that house prices will remain low for some time yet and as homeowners on tracker mortgages will agree, now is a great time to buy.  If you have the deposit required and can manage the fluctuation that come inherent with a variable mortgage.

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