Interest rates held at 0.5%

10 May 2018
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The Bank of England’s Monetary Policy Committee (MPC) has today voted by a majority of seven to two to keep base rate at 0.5%.

The move follows experts widely predicting that base rate would rise this May. In April, the EY ITEM Club suggested that the Bank of England could raise rates by 0.5% by the end of this year. It said this would come in the form of two 0.25% rate hikes, believed to be in May and November.

However, in direct contrast, earlier this month markets were pricing in a 92% chance of rates being held in May due to low GDP growth.

Tom Stevenson, investment director for personal investing at Fidelity International, explains: “Until a few weeks ago, a further quarter point rate hike to 0.75% looked almost guaranteed. But very weak UK GDP growth figures and fast-retreating inflation has seen a rapid reversal of the Old Lady’s increasingly unhelpful forward guidance. The Bank of England has marched investors up to the top of the hill, only to march them back down again.

“If the forecasts are right, then expect interest rates to remain lower for longer as UK growth lags the rest of the world, inflation subsides and Brexit clouds remain. This is good news for borrowers but piles yet more misery on savers.”

Ben Brettell, senior economist at financial provider Hargreaves Lansdown, adds: “Personally, I think we might not see a rate rise for the rest of the year. But while savers will be disappointed, it’s pretty good news for investors. Stock markets don’t tend to like rising interest rates much, so an environment where rates rise only gradually should be supportive for the UK stock market.”

Base rate last rose from 0.25% to 0.5% in November 2017. The MPC confirmed in today’s meeting that any future increases are “likely to be at a gradual pace and to a limited extent”.

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