Emma Lunn, Thursday July 10, 2008
Interest rates were kept on hold for the third month in a row today as the Bank of England continued its fight to keep inflation under control - but are they set to rise or fall over the coming months? And how will changes affect you? From your mortgage to your household income, we take a look
The Bank of England’s Monetary Policy Committee (MPC) decided to hold interest rates at 5% at
its monthly meeting today.
The “hold” decision was widely expected, making July the third consecutive month that the
base rate has been held and the fourth since it was last cut.
The decision came at a time when the economic outlook looks bleak. Nationwide's house prices
index for June showed that residential property is already 6.3% lower than last year. New building
has slumped by 38% on year on year basis from March to May according to the National House Building
Council and national house builders like Taylor Wimpey, Barratt and Persimmon are laying off staff
and seeing their share prices tumble.
Meanwhile the British Chamber of Commerce says Britain is on the brink of a recession and
unemployment is set to rise 300,000 by the end of next year.
Rate cut call
Today’s ‘no-change’ decision was widely expected but with house prices and consumer
confidence both at a low ebb, experts are calling for a cut in rates – including Ray Boulger of
mortgage broker John Charcol.
“With the economic news from nearly all sectors of the economy getting worse by the day, a
rate cut is badly needed to help restore some confidence to consumers and reduce the financial
pressure on both them and industry,” he says.
The MPC Minutes, which are published later this month, should give some more information on
how the MPC members judged the risks in what is a highly uncertain economic situation. If the
slowing in economic activity is occurring more sharply than anticipated, and supports lower
inflation in the medium term, a further rate cut could still be on the cards later this year,
although much will depend on how inflation develops in the coming months.
Next, we analyse what the next likely movement for rates is likely to be - and how it will
affect your finances.
