Interest rates remain on hold
Interest rates remain steady for another month after this week’s meeting of the Bank of England Monetary Policy Committee.
The MPC announced this lunchtime that base rate will remain at 4.75 per cent for the remainder of the year.
This is the fourth successive month that the Bank has held interest rates, after a period that saw rates rise five times in ten months to a three-year high.
The freeze had been widely predicted and has been welcomed by business groups.
Graeme Leach, the chief economist at the Institute of Directors (IOD) said that the Bank was right to hold rates “until the economic picture becomes clearer.
“There are three significant uncertainties at present. First, how strong is household spending over the Christmas period? Second, how fast is the housing market slowing and what will be the knock-on effect on consumer behaviour? Finally, how will the recent strength of sterling impact exporters and the general inflation outlook? The Bank of England’s Christmas cheer, is to wait until the answers are clear.”
David Frost, director general of the British Chambers of Commerce, suggested that rates might have to start moving downwards again. He added: “From a manufacturing perspective, it [the decision to hold rates] was inadequate. Sterling’s relentless rise against the US dollar, inevitably cause problems for many manufacturing companies … one cannot rule out the possibility that interest rates have peaked and, if pressures on industry worsen, they may have to come down.”
But many economists still believe a modest rise in the cost of borrowing is the most likely future.
“It is certainly a distinct possibility that the repo [base] rate is now at its peak,” said Jeremy Peat, chief economist at the Royal Bank of Scotland. But he added that if certain data stayed the same, a further rate hike was likely around August next year. “That would take rates to a peak of just five per cent.”
With only 17 per cent of UK householders on a fixed or capped rate mortgage any changes made by the Bank directly affect homeowners.
The five interest rate hikes since last November added ten per cent to the monthly repayment on a £100,000 mortgage according to HBOS, and are widely seen as having helped to cool the UK property market.
