Inflation fears hold base rate at 5.25%

06 March 2008 / by Joy Tibbs
Despite fears of further slowdown in the UK economy, the Bank of England’s Monetary Policy Committee (MPC) has voted to keep the official base rate at 5.25%. Its reluctance to introduce further cuts is thought to be a way of curbing further rises in inflation.

The base rate was lowered from 5.5 per cent to 5.25 per cent in February in order to avert what looked like becoming a slump in the economy. The February cut came close on the heels of a previous 0.25 per cent cut in December.

The static base rate is good news for savers as, according to MoneyExpert.com, payouts on savings have risen 1.2 per cent compared with January 2007 payouts.

"Average rates on savings have rocketed as finance firms try to raise cash after the money markets seized up," says chief executive, Sean Gardner. "If you have a savings account that pays less than the base rate you should take your business elsewhere, and fast.”

However, although several industry experts had predicted that the rate would remain unchanged, many homeowners and prospective buyers will be disappointed by the announcement.

Partner at Cobalt Capital, Andrew Montlake, says: "A cut would have been a welcome boost for homeowners, especially first-time buyers, and would have helped offset the rises in tracker rates, which have been occurring regularly over the past few weeks as lenders fight to increase their margins. It would also have come as a boost to the weakening housing market, which, according to the Halifax, fell by 0.3 per cent in February.

"However, the Bank is also concerned by inflation, and had already warned in February's inflation report that there may not be room for many more cuts in order to keep this in check. With this in mind, and the prospect of further rate rises among lenders, fixed-rate products could prove attractive at present."

Just prior to the announcement, economic adviser to the British Chambers of Commerce, David Kern, said: "Global and domestic economic circumstances have deteriorated since the February meeting and we believe that there is a clear need for a further cut in rates to five per cent.

“Inflation remains a danger and the Bank of England must of course act with caution. However, the threats to growth are more urgent at present and preventing a downturn must be the top priority in the near future."

The minutes of the MPC meeting will be published on March 19.

© Fair Investment Company Ltd