10th March 2011
Commentators are now increasingly divided on the future movement of interest rate. Today's vote is likely to have been a split vote and the decision on whether to raise rates or not hinges on how the economic data appears in the coming months as well as events in the Middle East which impact oil and petrol prices.
Some forecast rises as early as April or May, whereas others predict the MPC will hold off on any rises until next year.
"In the short term the recent rise in the oil price, coupled with the much greater than usual short term uncertainty about the pricing impact of events in the major oil producing regions, increases the challenge facing the MPC," says Ray Boulger of mortgage broker John Charcol. "One must now expect inflation to peak even higher than looked likely only a month ago. However, the impact on consumer spending of higher pump prices is similar to the impact of higher interest rates and so for the MPC to impose an avoidable double whammy on consumers by increasing bank rate would make no sense."
Meanwhile a survey by Moneysupermarket found that 42% of homeowners are worried about how future rate rises will affect their mortgage repayments and overall finances.
A base rate rise of just 0.5% would mean a £44 per month jump in mortgage payments for homeowners with a £150,000 variable repayment mortgage on an average 4.74% SVR. If the base rate rises by 1%, their monthly repayments would leap up by £88, representing a huge hit to their finances.
Kevin Mountford, head of banking at moneysupermarket, says: "Reducing the base rate at a time when the country was at the beginning of the credit crisis was the right thing to do at the time as it freed up vital money to help stimulate the economy. Many consumers have taken full advantage of the fall in mortgage payments and have absorbed these savings into every day living costs. However, the danger is, when rates rise, which they will do sooner rather than later, many people will find they don't have the spare cash to fund the increases in their monthly payments."
For people looking for a new mortgage and unsure about whether to opt for a variable or fixed rate, Andrew Montlake of mortgage broker Coreco says that many of the expected future rate rises are already playing out with lenders increasing their fixed rate products on a regular basis.
"Whether we see increased competition returning to the mortgage market to offset these rises is unlikely in the short-term," he says, "Fixes at 2.65%, (4.24% APR) for two years, 3.49% (5.99% APR) for three years and 3.95% (4.0% APR) will no doubt not be around for long."
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