You are here: Home - Uncategorized -

Base rate held for 23rd month

Written by:

The Bank of England has chosen to hold base rate at 0.5%, despite increasing pressure from rising inflation. The Monetary Policy Committee (MPC) has also maintained its quantitative easing asset purchase programme (QE) at £200bn.

However, concern over inflation has led some economists to speculate that the MPC will break the record breaking run of base rate’s historic low by increasing it sooner than previously predicted.

Inflation remains well beyond the MPC’s target of 2% to 3.7%, as commodity prices have soared in recent months. The next inflation report, due on 16 February, will reveal if the figure has been pushed even further.

Nevertheless, there has been no revision of official interest rate predictions, with the CBI stating it expects base rate to move in Q4 2011.

Minutes from last month’s MPC meeting revealed that the members are increasingly split over what move to make, with two members, Andrew Sentance and Martin Weale, voting for interest rates to be hiked 0.25%.

A third, Adam Posen wished to see base rate held and QE increased to £250bn.

Barry Naisbitt, chief economist at Santander UK, said: “The surprise news last month was that two MPC members voted to raise rates. This, combined with concerns that inflation is going to increase further, made the February decision more uncertain than for a long time.

“While the MPC has again voted for no change, it may have been by a narrower margin than last month. We’ll know the voting outcome and the views behind it in a couple of weeks when the minutes are published.”

He added: “Financial markets will turn their attention to the quarterly inflation report and, in particular, the projections for inflation and growth.

“Since the last report, we have had the unexpected 0.5% fall in GDP in the final quarter of last year and the more positive survey readings for January. There will be a considerable focus on how the Bank views these, whether it expects inflation to be higher this year than it did a few months ago, and how it judges the risks in the current economic situation.”

Ray Boulger, senior technical manager at John Charcol, commented: “A Bank rate increase now would have a minimal impact on inflation, but the message it sends to consumers would seriously increase the risk of a double dip recession, which would be politically very embarrassing for the government.

“This suggests that the 0.5% Bank rate will not only reach its second birthday next month, but also notch up several more months before a rate rise is justified.

“With arch hawk, Andrew Sentence, due to retire from the MPC after the May meeting it will be even more interesting than usual to see whether the Chancellor replaces him with someone of the same ilk or someone whose view on interest rates is more in keeping with the Chancellor’s position.”

Related Posts


Tag Box

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

ISAs: your back-to-basics guide for 2018/19

Here’s everything you need to know to make the most of your unused ISA allowance ahead of the 5 April deadli...

A guide to Sharia savings accounts

A number of Sharia savings products have upped their game in recent months, beating more familiar competitors ...

Five ways to get on the property ladder without the Bank of Mum and Dad

A report suggests the Bank of Mum and Dad is running low on funds. Fortunately, there are other options for st...

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Having a baby and your finances: seven top tips

We’re guessing the Duchess of Cambridge won’t be fretting about maternity pay or whether she’ll still be...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Money Tips of the Week

Read previous post:
8m Brits miss credit payments in 2010

More than eight million Britons missed paying regular monthly bills last year, putting their credit profile at risk, according to...