Bank of England holds interest rate at 0.25%

3 August 2017

The Bank of England’s Monetary Policy Committee (MPC) has held the base rate at its current level of 0.25%.

The Committee made the decision to keep rates the same by six votes to two.

In the previous MPC meeting three members had voted to raise interest rates, versus five who wanted no change. However, Kristin Forbes – who voted for an increase – left the committee on 30 June.

Her replacement, economics professor Silvana Tenreyro, voted against a rate rise in this session. Ian McCafferty and Michael Saunders continued to support an interest rate rise.

The Bank of England has also cut its economic growth forecast for both 2017 and 2018. It expects growth of 1.7% this year, down from its previous prediction of 1.9%. The 2018 estimate was also revised down, from 1.7% to 1.6%.

The MPC says it expects inflation to rise in the next few months, peaking at around 3% in October. It says this is due to the fall in the value of sterling continuing to increase prices for consumers.

‘It’s not a question of if, but when rates will rise’

Richard Sexton, director of chartered surveyor e.surv, says: “With the current political and economic uncertainty, it is not a question of if, but when will rates eventually rise. It’s interesting to consider that for many current mortgage holders, they have never experienced a rate rise and the impact of any payment shock is unknowable at this time.

“Low interest rates coupled with rising house prices have led to borrowers struggling to save deposits, and instead many are having to borrow larger amounts of money to get onto the housing ladder.

“e.surv’s latest Mortgage Monitor shows that June was the fifth successive month where large deposit borrowers accounted for less than 35% of the overall market. With more people taking on larger loans, an interest rate rise will be felt first in this segment of the market.” 

Tom Stevenson, investment director for personal investing at Fidelity International, adds: “It seems the Bank is reluctant to rock the economic recovery by hiking rates just yet and the Bank’s view on growth has also been downgraded since the May meeting.

“So what do today’s announcements mean for investors? More of the same really. It is hard to see interest rates rising very far, very fast in the current sluggish environment.

“I would be surprised to see any hike at all this year. Even when last year’s quarter point cut to 0.25% is reversed, I would caution against assuming that the Bank is setting off on a more determined tightening path.”

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