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Interest rates expected to remain static in September

05 September 2007
It is expected that policymakers will decide to keep the base rate at its current level this month, The Press Association has reported, as new evidence emerges which shows that homeowners are struggling to keep up with their mortgage repayments.

Homebuyers have already faced five rises in the interest rate in the last 12 months, which has put considerable strain on their ability to keep up with repayments, so economists predict that the Bank of England will hold the rate at 5.75%.

Bad debts that have been written off by banks soared to £2.3 billion in the second quarter of 2007, in part due to the US sub-prime mortgage market crisis which has seen a huge rise in the number of repossessions, and there are concerns that this will spread more drastically into the UK market.

Other evidence of people’s struggle to keep up with their outgoings can be seen in high street sales figures which have been growing at the lowest levels seen this year, as shoppers curb their spending. The CBI business lobby group surveyed retailers which said that they were wary of raising prices when the bank’s base rate keeps hitting shoppers.

Despite the influx of Harry Potter fans that flocked to shops last month, increased book sales have done little to offset the clothing sales that have been struck by the disappointing summer weather. Figures have been higher than expected, according to official data from the Office for National Statistics, but it is believed that this is largely due to aggressive discounting on the part of retailers.

Royal Bank of Scotland UK economist Geoffrey Dicks said that “The MPC is extremely unlikely to raise bank rates against a backdrop of highly volatile and fragile financial markets. But,” he warned, “there is little hard evidence at this stage to suggest BoE policy easing is imminent.”

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