The Bank of England announced today that the base rate of interest will remain unchanged.
The Bank of England’s monetary policy committee (MPC) has chosen not to change the interest rate from five per cent, in its monthly meeting. This is the third time this year that the rate has been maintained, with cuts of .25 per cent in both February and April.
Resulting from the MPC’s decision, it is probable that consumers do not find any increased pressures on their finances. And during the current economic climate, at least homeowners should find that their mortgage repayments do not increase. Additionally, people could also discover that their is no increased pressure in managing other monetary demands - such as personal loans, credit and store cards and utility bills.
Equity strategist for Barclays Stockbrokers, Henk Potts made the following comments: “The monetary policy committee is caught between a slow growth rock and a high inflation hard place. UK economic growth is clearly moderating; consensus forecasts are for growth of just 1.6 per cent this year compared to the three per cent expansion recorded in 2007. However, outside the housing market and survey data, there is little hard evidence of a marked slowdown in UK aggregate demand.”
He also claims that headline inflation is set to “stay high” for the rest of this year, also likely to move likely to move up from the current rate of 2.4 per cent is the consumer price index inflation. The increase in the latter was attributed towards increasing energy prices and continuing depreciation of the pound. However, he feels that the Bank of England is due to carry out further reductions to the base rate, with this he feels likely to stand at 4.25 per cent by the end of the year.
Michael Coogan, director general at the Council of Mortgage Lenders, stated that although the objective of the MPC, is to strike a balance between rising inflation and slowing economic growth when making its decision, I am disappointed that an opportunity to cut the base rate was missed. He went on to add that he expects the mortgage and housing markets to face challenges for the rest of the year, most homeowners seem to be “managing fine”.
However, Mr Coogan also advised those consumers who are having problems managing their money or feel that they may be about to develop problems to get in touch with their finance company or a debt advisory service as soon as possible.
For those that are concerned about their ability to manage their finances as the year progresses now might be a good time to take out a cheap loan. By choosing this type of loan, it is likely that borrowers can supplement their spending effectively and help with making major purchases.
An increasing number of homeowners are looking for mortgage products which follow any changes to the base rate of interest according to research carried out by the CML last month. 35 per cent of consumers were shown to be taking out tracker rate mortgages in February this year, more than double the 14 per cent recorded during the same month in 2007.