10th February 2011
The Bank of England's Monetary Policy Committee (MPC) confirmed widespread expectations today by keeping interest rates on hold at 0.5%, for the 23rd consecutive month.
But pressure is mounting on the Bank to raise interest rates soon in a bid to combat soaring inflation. The Consumer Prices Index (CPI) was measured at 3.7% in December, a far cry from the government's 2% target, and further climbs are anticipated. Minutes of January's MPC meeting revealed a second member, Martin Weale, joined Andrew Sentance in voting for a 0.25% rise.
Mortgage borrowers on variable rates who are worried about the looming rise in their monthly mortgage payments, should act now according to experts. Fixed rates deals, which are priced on swap rates that move in anticipation of base rate, have already climbed. According to data from Moneysupermarket, the average two year fix rate deal now stands at 4.45% compared to 4.27% last month.
Ray Boulger, senior technical manager at broker John Charcol, said: "Anyone with a good credit history paying an SVR of 3.5% or more with at least 15% equity should consider a better mortgage deal."
Commentators are now increasingly divided on the future movement of interest rate. Some forecast rises as early as May, whereas others claim that doubts over the strength of economic recovery will persuade the MPC to hold off on any rises until as late as 2012.
Azad Zangana, European economist at Schroders, said: "The fall in GDP at the end of 2010 has raised doubts over the strength of the recovery, even if the ‘snow effect' is taken into account.
"Moreover, house prices are falling, net lending is negative, consumer confidence is sharply down, and fiscal tightening is still to come. We think the MPC will keep interest rates on hold until the end of this year."
bearfacedliars view from the Telegraph seems to be the general consensus feeling about the outcome: "How much inflation will have gone 'under the bridge' by the time the BoE normalise rates? 20% 30% 40%? Even if inflation does fall to 2% in a year's time, savers and pensions on fixed incomes will have suffered massive losses. Their wealth being transferred to the banks and the property speculators. Just disgusting."
Mark Wadsworth from Citywire has a similar opinion: "Aren't people supposed to plan for these eventualities when they take out a mortgage? What if one of us loses our job? What about maternity leave? Pay cut or freeze? Interest rate rise?
I don't see why they are now so deserving of a safety net, or are we still subscribing to the myth that House Prices Can Only Go Up, and who cares about the interests of younger people, taxpayers, savers etc?"
SEE ALSO: Interest rates to be set this week
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