Interest rates at 0.5% for another month

Interest rates at 0.5% for another month

09 July 2010 / by Rachael Stiles

The Bank of England has voted to keep interest rates at 0.5 per cent again and retain the size of the Asset Purchase Programme at £200billion.

This is the longest period that the Bank of England base rate has remained unchanged since the Queen ascended to the throne, mortgage adviser John Charcol has remarked – the sixteenth consecutive month.

Commenting on the news that the base rate will remain at 0.5 per cent for at least another month, Ray Boulger, spokesperson for John Charcol, said that "back in those days the rate was called Bank Rate and was at 4% from 11 March 1952 until it fell to 3.5% on 17 September 1953.  Even this record looks almost certain to be broken in three months time."

Mr Boulger suggests that the Budget will have an impact on how long the base rate continues to remain static.

"Probably the most significant influence on the timing of a Bank Rate increase since last month's meeting was the budget," he said. "The market has responded positively to the confirmation provided by the budget that the coalition has adopted a more fiscally prudent policy than the previous government."

The base rate will not increase for the rest of the year, Mr Boulger believes, making tracker mortgages the best value over a fixed rate.

"In general, lifetime trackers still offer better value for the time being, based on our expectation that interest rates will only rise slowly, but at current pricing the best 5 to 10 year fixed rates are now a viable proposition for those who want, or need, interest rate security."

Barry Naisbitt, chief economist at Santander UK, said that "Recent indicators, such as survey indicators of output, show a reasonably positive picture of economic activity. Of course, inflation at 3.4 per cent is well above its target, but this is largely due to temporary factors and the Bank of England expects it to move back towards the 2 per cent target as the year progresses."

Mr Naisbitt said that with the unmoved rate bringing no surprises, the real interest lies in the MPC minutes, because in last month's meeting one of the members voted for a rise and it remains to be seen whether this month's Monetary Policy Committee meeting will illustrate a shifting in the tide.

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