Borrowers will breathe a sign of relief today following the Bank of England’s decision to freeze the official base rate for the second month running.
The rate has risen three times this year - most recently on July 5th by 0.25% - which has put a real strain on many home owners but, following a vote by the Bank of England’s Monetary Policy Committee, the decision today was taken that the rate should be maintained at 5.75%.
The decision was widely expected after inflation fell in July to 1.9 per cent from 2.4 per cent in June, below the Government's target rate of 2.0 per cent.; at the meeting, the committee judged that no change in Bank Rate was necessary to keep inflation on track to meet the target in the medium term.
“Today’s MPC decision to maintain rates at 5.75 per cent was widely expected,” said Stephen Leonard, Director of Mortgages at Alliance & Leicester, “for borrowers, today’s rate decision will be a welcome relief.”
“We are still seeing the effects of the previous rate rises filtering through to homeowners and the latest inflation figures are now back below the Government’s 2 per cent target.
Michael Coogan from the Council of Mortgage Lenders says the bank of England was right not to implement a further rise.
"Credit conditions have tightened since the rate went up in July, and a further increase would have added to the liquidity problems we are already seeing in some sections of the market, “ he said.
“At the same time, there is now much clearer evidence that the cumulative effect of five rate rises since last August is slowing activity in the housing market.
“The Bank is right to wait and see, and if market conditions produce a further tightening of credit, it will strengthen the case that the next decision should be that rates go down, not up."
And Trevor Williams, chief economist of Lloyds TSB Corporate Markets says he thinks rates have probably reached a peak.
“Falling inflation, slowing earnings growth and the cooling housing market are just a few of the many signs that rates have probably reached their peak.
“As for the future, we can probably expect rates to be kept at their current level for a while yet. The MPC will want to wait for the pain of the credit crisis of recent weeks to ease - and for the effects of past rate increases to show through more clearly.”
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