Base rate held at 0.5% for June
The Bank of England has voted to keep the official rate of interest in the UK at 0.5% for a third month.
It then froze the base rate in May, and has now decided to stick with this policy for a further month.
The move is good news for mortgage borrowers with interest rates that track the Bank of England base rate, as it means they will not see their monthly repayments increase in June.
However, experts say that complacency about low rates could be dangerous. "The fact is, half a percentage point is far from the norm - it is likely to increase to 5% or 6% over the long term but could rise beyond this if the rate of inflation increases sharply down the line," says David Hollingworth, spokesman for London & Country mortgage broker.
"Anyone who has seen their monthly repayments fall since October should seriously consider overpaying on their mortgage to try and pay off some of their debt."
The historically-low base rate is, however, less positive for savers. Banks and building societies have passed on the cuts, with headline rates on fixed, instant access and cash ISA accounts falling dramatically since October.
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.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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.