Interest rate freeze continues

Interest rate freeze continues

08 January 2010 / by Andy Davies

Interest rates have been frozen at 0.5 per cent for the tenth consecutive month following the Bank of England's latest meeting.

The Bank of England's Monetary Policy Committee (MPC) decision to freeze interest rates means the cost of borrowing remains at a record low.

Meanwhile, the MPC voted to continue with its £200billion quantitative easing (QE) programme which it expects will take another month to complete.

Commenting, Duncan Higgins, senior analyst at Caxton FX, is not surprised by the MPC's announcement.

"Today's announcement is unlikely to raise too many eyebrows, with only a pessimistic few expecting the asset purchase scheme to be extended. Data this year has already shown some positives. A solid money supply figure released on Monday raises hopes that the BoE's efforts to ease credit conditions are having an increasing impact on the economy," he said.

Reacting to the news, the Association of Mortgage Intermediaries (AMI) has welcomed the MPC's decision, stating that the economic recovery "remains fragile" and the housing market would be "very susceptible to any shocks".

Commenting, Robert Sinclair, director of AMI said: "It is no surprise that the base rate remains unchanged in the absence of any data that suggests action is required. With £7bn left in the quantitative easing programme, the economic data in the next few weeks will set the tone for interest rate decisions in the coming months."

Meanwhile, Ben Thompson, director of mortgages at Legal & General believes interest rates could remain at this record low throughout the whole of 2010.

However, he warned that a year is a long time in the housing industry before suggesting that inflationary pressures "could change the landscape quite dramatically".

"Rising oil prices, an increase in VAT, improvements in the economy and the as yet unknown full effects of the quantitative easing package will all be pushing prices upwards.

"We've never seen financial intervention and stimulus on this scale before and we don't know for sure how it will pan out for borrowers. The normal rules don't necessarily apply and there is a risk that the Bank of England has already pumped too much fuel into the engine," he said.

© Fair Investment Company Ltd