Interest rates on hold
The Bank of England kept interest rates on hold at 4.75 per cent in April.
This is the eighth month in a row that the Bank’s interest-rate setting Monetary Policy Committee (MPC) has voted to freeze base rate.
The decision to keep rates on hold was widely anticipated by analysts, with all 87 economists polled by Reuters and Bloomberg correctly predicting the MPC’s decision.
But the current extended freeze in interest rates is not predicted to continue for much longer.
“A quarter-point rate hike as early as May is still a distinct possibility,” said Howard Archer, chief UK economist at Global Insight.
BDO Stoy Hayward said it believes there will be two more interest rate rises before the end of the year, taking the interest rate to a four-year high of 5.25 per cent.
However, the accountancy firm expects the MPC to wait until June to increase rates.
The MPC increases and lowers interest rates to try to hold inflation as close as possible to its two per cent target.
In March it voted 7-2 to keep rates on hold, the majority of the committee believing the risk to inflation was too small to warrant a higher cost of borrowing.
But support for a rate hike is growing. In January the decision to hold rates was unanimous, but in February Paul Tucker voted for an interest rate rise, and last month he was joined by deputy governor Andrew Large.
Some observers are already warning about the dangers of increasing the cost of borrowing.
Last year the Bank of England increased base rate four times – adding around £1,000 to the cost of an average mortgage. This is widely seen as being responsible for the cooling of the housing market. But there are fears that a further increase in base rate could see the market collapse.
David Bexon, chief executive of SmartNewHomes.com, commented: “The four rises last year had a rapid effect on the market and well and truly put the brake on rising house prices. Prices are now stable across the country with some areas seeing a drop in values. Our fear is that a further rise, as predicted by some economists and hinted at by the split in votes at the last committee, could be the catalyst to a serious downturn in the market.”
