No Changes Made to the Base Rate of Interest

By: Abbi Rouse
The Bank of England's monetary policy committee (MPC) has decided not to change the base rate of interest for the second month running, it currently stands at five per cent.

The MPC has made 6 decisions on the interest rates so far this year, 4 of which it decided to make no change. 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.

"It is indisputable that UK economic growth is slowing - the credit crunch has diminished the availability of finance, the housing market is grinding to a halt, and the high street is also softening. Actual incomes are also being affected by rising inflation, which could potentially reduce household demand even more. Meantime, inflation is way higher than the target, and likely to get even higher before it comes down. 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 beginning of the year with two reductions of 0.25 per cent twice this year in February and April leaving the rate at a level not seen since the end 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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