The Bank of England's monetary policy committee (MPC) has
decided to hold the base rate of interest at an even five
per cent.
It is the sixth interest rate decision the MPC has made so
far this year and the fourth time it has decided to
maintain the base level. The committee last decided to
alter interest rates in April when it announced a reduction
of 0.25 percentage points from 5.25 per cent. This decision
came in response to higher food and fuel prices, on top of
a depreciating strength of the pound on import prices.
Following the decision, it may well be that consumers find
that the monthly demands of mortgage and loan repayments do
not com} under further strain as the MPC looks to peg back
inflation and maintain a stable financial system.
Commenting on the decision, financial services provider
Abbey suggested that MPC members must have taken into
consideration that indications of slowing output growth
needed to be measured about expectations of future
inflation and other contractions in economic activity.
It added that the minutes of the meeting, which are
scheduled to be releasead on Wednesday June 18th, should
give additional insight into the reasons behind the
decision. The group does not rule out a further rate cut
later in the year, although points out that future
decisions will be heavily influenced by the rate of
inflation in the coming months.
Meantime, Barclays has noted that the Mpc is in a tricky
position as it looks to fulfil a double role trying to keep
inflation down and encourage economic growth.
"There is no doubt that UK economic growth is moderating -
the credit crunch has reduced the availability of credit,
the housing market is slowing down and the high street is
showing signs of softening. Real incomes are also being
squeezed by high inflation, which has the potential to
further reduce household demand. Meanwhile, inflation is
way above target and set to go even higher in the coming
months. However, as you look into 2009, slowing economic
growth should reduce capacity pressures and thus inflation
and therefore there is still the possibility the MPC could
cut interest rates later on in the year." the bank states.
Inflation is currently running at three per cent, with an
additional consumer price index decision expected on June
17th. The Council of Mortgage Lenders pointed out that its
prediction of a rate hold were fuelled by the Bank's need
to keep the rate of inflation low in a weakened economic
outlook. Meantime, it noted that a tightening in UK loans
approvals and affordability pressures in the housing
markets needed to be addressed. The group stated that it
hoped the Bank's liquidity scheme would help to alleviate
some of the pressure faced by mortgage UK loan providers
and by doing so assist struggling borrowers later in the
year.
The base rate stood at 5.5 per cent at the start of 2008,
but two cuts of 0.25 percentage points in both February and
April left the rate at a level not seen since the latter
stages of 2006. Commenting on the last rate cut, Sean
Gardner, chief executive of MoneyExpert, described the
development as a "welcome relief" for consumers.
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Abbi Rouse writes for AllAboutLoans.co.uk, a loans
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