Interest rates on hold again

7 April 2011

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."

Read our round up of the best savings rates currently available

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. 

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