Base Rate Remains Unchanged

By Mark Dawson in Mortgages on May 14th, 2008

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by Mark Dawson

It was announced today that the base rate will remain unchanged.

In its monthly meeting, the Bank of England’s monetary policy committee (MPC) has chosen to keep interest rates at five per cent. The announcement means it is the third time the committee has decided to maintain the rate this year and follows cuts of 0.25 percentage points which were actioned in both April and February.

As a result of the MPC’s decision, it is likely that consumers find the pressures which their finances are under does not get worse. And during our current period of economic difficulty, homeowners will probably find that their monthly mortgage repayments remain unchanged. Also, people could find that their ability to manage other financial demands - such as credit and store cards, personal loans and utility bills - is not put under further strain.

Barclays Stockbrokers equity strategist Henk Potts stated: “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 added that headline inflation is set to “remain elevated” for much of the remainder of 2008, while the consumer price index inflation is predicted to move above the current rate of 2.4 per cent. Mr Potts attributed the increase in the latter towards rising energy prices and continuing depreciation of the pound. However, he pointed out that the Bank of England is set to carry out a series of decreases to the base rate of interest, with this predicted to stand at 4.25 per cent by the end of this year.

Director general at the Council of Mortgage Lenders (CML), Michael Cougan claimed that although the MPC was required to strike a balance between slowing economic growth and rising inflationary pressures when making its decision, it is “disappointing” that they had missed a chance to cut the base rate. He also added that although the mortgage and housing markets are likely to face challenges for the rest of the year, most mortgage payers are “coping well”.

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.

Research carried out by the CML last month indicated that an increasing number of homeowners are looking for mortgage products which follow any changes to the base rate of interest. In February some 35 per cent of consumers were shown to be taking out tracker rate mortgages, a rise from the 14 per cent recorded during the same month in 2007.

About the Author:

Mark Dawson writes for the the UK Loan Arrangers where you can compare cheap online loans and apply online for the best rate secured loans, and direct loans.