Interest rates on hold again
The Bank of England (BOE) has kept interest rates at 0.5% for a 28th successive month.
This move was largely in line with expectations, as the Monetary Policy Committee (MPC) waits for clearer signs of recovery in the economy before pushing rates up. This is despite inflation running at 4.2%, well above the bank's 2% target.
Although the BOE’s decision benefits borrowers and homeowners, it is more bad news for savers.
Kevin Caley, managing Director of consumer investing website ThinCats, says:
"With accounts today returning under one per cent on average the nation’s savers are set to continue receiving pitiful returns on their money."
Dr Ros Altmann, director-general of Saga, echoes these sentiments. She says:
"The Bank of England is once again not responding adequately to the serious inflation threats facing the UK economy."
"When will the pressure ease off and savers and pensioners living on fixed incomes receive some relief? The sooner rates start to rise a little, to restore some confidence to consumers worried about soaring inflation, the better."
Chaos on the high street
In recent weeks, a spate of well-known high street retailers have closed business and Max Johnson, broker at foreign exchange specialists Currency Solutions believes the Bank is wary of doing anything that will "choke off consumer confidence further". He adds:
"After contracting at the end of 2010, the British economy is recovering slowly. And the Bank of England clearly feels that the recovery could be scuppered if it puts up interest rates too soon."
Homeowners looking to remortgage could find themselves in a tricky predicament, unsure to fix or go for a tracker mortgage.
"The base-rate can only go one way, but the question is when, by how much and how quickly - and this is the great unknown. Unfortunately, those that make the wrong judgment are likely to find themselves significantly out of pocket," says David Black, insight analyst for data provider Defaqto. He adds:
"Our analysis shows that while tracker margins have fallen since early 2010 they are still significantly higher than they were in 2007, before the credit-crunch – and this makes the decision-making process even more difficult for borrowers."
Future base rate moves are not expected by experts until the latter part of this year.
With a tracker mortgage, the interest you pay is an agreed percentage above the Bank of England’s base rate. As the base rate rises and falls, your tracker will track these changes, and so rise and fall accordingly. If your tracker mortgage is Bank of England base rate +1% and the base rate is 5.75%, you will be paying 6.75%. Tracker rates are lower than lender’s standard variable rate (SVR) and as they are simple products for lenders to design, they usually come with lower fees than other mortgage schemes.
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.