Interest rates to remain at 5% for June
The Bank of England has voted to freeze interest rates at 5% for June.
The decision was largely expected despite figures showing the continued downturn of the housing market. The central bank’s Monetary Policy Committee last reduced rates in April, but kept rates frozen last month in an attempt to control rising inflation.
It is hoped that lower interest rates will bring down the cost of funding for mortgage lenders, and therefore reduce the prices currently seen on mortgage deals.
However, with inflation currently at the 3% mark – 100 basis points above target – the MPC seems to sticking to its guns and continuing its battle against inflation rather than making moves to prop up the mortgage market.
Tim Fletcher, sales and marketing director of Baseline Capital, says: "The Bank of England is stuck between rock and a hard place. It has one objective – mitigating inflation.
"This isn’t the US where the central bank has to balance inflationary control with economic stability and growth. While commodity prices are putting pressure on inflation, our MPC has little freedom of action. And at any rate, loosening monetary policy today would have had little effect on lenders’ retail rates.”
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).