Interest rates to remain at 5% for June

5 June 2008

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.”

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