Interest rates held at 5%
The Bank of England has voted to hold interest rates at 5% for May.
The central bank’s Monetary Policy Committee reduced rates last month and despite pressure from the mortgage market it has now decided to hold for a further month.
The decision is likely to be in response to fears of rising inflation.
"In spite of three interest rate cuts since December, borrowers haven’t benefitted from lower mortgage rates, and banks’ significantly reduced lending is making the situation worse.
The truth is, the Bank of England base rate has become completely detached from the cost of borrowing for the man on the street.
"The UK housing market is vulnerable at the moment. The number of people buying houses has halved in 12 months. And it's now more crucial than ever that the government, Bank of England and lenders work together to tackle these issues."
Experts say that the MPC must cut rates soon to help the economy. John Postlewaite, principle at Punter Southall, says: "A further rate cut is desperately needed, with the house price index from both the Halifax and the Nationwide showing year on year reduction in the value of property and The Council of Mortgage Lenders predicting that the volumes of mortgages available this year will fall, homeowners are desperate for some rest bite and good news."
Andrew Montlake, of mortgage brokers Cobalt Capital, adds: "The MPC has historically seemed reticent about back-to-back base rate cuts. However, this cautious approach is disappointing, because a strong stance may be just what is needed to start rebuilding confidence in the financial markets."
But Montlake admits that a cut in May would not have offered a quick-fix solution to the current crisis. "Lenders are still faced with a lack of liquidity and little confidence in the financial markets. Small base rate cuts alone are unlikely to have any major effect, especially as many lenders are not able to pass these cuts directly onto the consumer given the current funding costs," he says.
"A rate cut in June is now looking extremely likely, but until the MPC broadens its horizons from just concerning itself with keeping inflation n check, and starts focusing on the wider issues, we are unlikely to see a change in policy."
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.