The Bank of England
's decision to keep the base rate at 5.5 per cent has met with a mixed reaction. Although some have criticised the Monetary Policy's (MPC's) failure to introduce a further cut, others believe it is the right decision at this point in time.
Mortgage lender John Charcol believes the decision will have a detrimental affect on some mortgage holders. "We estimate the MPC’s failure to cut Bank Rate this month will cost UK homeowners with a variable rate mortgage about £105 million per month in mortgage interest payments.” says company spokesperson Ray Boulger.
However, Mr Boulger says that there is light at the end of the tunnel for many other homeowners. "There is, nevertheless, some good news for borrowers looking for a fixed rate mortgage
," he says, "The Bank Rate/LIBOR spread has narrowed sharply over the last couple of weeks, as has the gilt-yield/swap rate spread, albeit to a lesser extent, and this is an encouraging sign for an easing of the liquidity squeeze."
Torquil Clark mortgage strategist Jenny Challenor also expressed mixed feelings about the decision. "Borrowers on tracker deals are going to be disappointed, but I welcome today's news that the Bank of England have not given into untimely pressure to cut interest rates," she says.
"Economists are still predicting an interest rate cut is still imminent, and I would welcome this next month. Right now, borrowers need to clearly understand the message, that we are not yet out of murky financial waters," she adds.
Meanwhile, Ian McCafferty, chief economic advisor at the Confederation of British Industry, explains that cutting rates is not always as straightforward as people think. "The economic news over Christmas was mixed, and the severity of the slowdown difficult to determine. At the same time, inflationary pressures from energy and food costs remain worrying," he comments.
"What probably tipped the balance in today’s [January 10] decision was the much greater calm in the money markets, following the injection of liquidity by the key central banks in the run up to the critical year end period. Three-month LIBOR spreads have fallen to their lowest since last August," he explains.
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