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MPC Maintains Interest Rates

The Bank of England announced today that the base rate of interest will remain unchanged.

In its monthly meeting, the Bank of England's monetary policy committee (MPC) has chosen to keep interest rates at five per cent. The announcement means it is the third time the committee has decided to maintain the rate this year and follows cuts of 0.25 percentage points which were actioned in both April and February.

Resulting from the MPC's decision, it is probable that consumers do not find any increased pressures on their finances. And during the current economic climate, at least homeowners should find that their mortgage repayments do not increase. Additionally, people could also discover that their is no increased pressure in managing other monetary demands - such as personal loans, credit and store cards and utility bills.

Equity strategist for Barclays Stockbrokers, Henk Potts made the following comments: "The monetary policy committee is caught between a slow growth rock and a high inflation hard place. UK economic growth is clearly moderating; consensus forecasts are for growth of just 1.6 per cent this year compared to the three per cent expansion recorded in 2007. However, outside the housing market and survey data, there is little hard evidence of a marked slowdown in UK aggregate demand."

He added that headline inflation is set to "remain elevated" for much of the remainder of 2008, while the consumer price index inflation is predicted to move above the current rate of 2.4 per cent. Mr Potts attributed the increase in the latter towards rising energy prices and continuing depreciation of the pound. However, he pointed out that the Bank of England is set to carry out a series of decreases to the base rate of interest, with this predicted to stand at 4.25 per cent by the end of this year.

Michael Coogan, director general at the Council of Mortgage Lenders, stated that although the objective of the MPC, is to strike a balance between rising inflation and slowing economic growth when making its decision, I am disappointed that an opportunity to cut the base rate was missed. He went on to add that he expects the mortgage and housing markets to face challenges for the rest of the year, most homeowners seem to be "managing fine".

However, Mr Coogan also advised those consumers who are having problems managing their money or feel that they may be about to develop problems to get in touch with their finance company or a debt advisory service as soon as possible.

For people who are concerned about their capacity to manage their money as 2008 progresses now might be an ideal time to take out a personal loan. By selecting this type of loan, it is possible that borrowers are able to supplement their spending effectively and make major purchases.

An increasing number of homeowners are looking for mortgage products which follow any changes to the base rate of interest according to research carried out by the CML last month. 35 per cent of consumers were shown to be taking out tracker rate mortgages in February this year, more than double the 14 per cent recorded during the same month in 2007.

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