Search Coreco

Bank Base Rate Held – For Now


After a whirlwind of headlines last month, some proclaiming the death of the recovery and others forecasting apocalyptic levels of inflation, the Bank of England’s’ Monetary Policy Committee, (MPC) have held firm and decided to keep Base Rate on hold for yet another month.

The minutes of this meeting should make for interesting reading as there is more than a touch of speculation about just how “firm” the MPC actually are in their current stance.

No doubt the last GDP figures will have taken some of the pressure off, with an unexpected 0.5% fall in production giving those who seem to welcome a double-dip some ammunition and allowing the MPC some breathing space.

However, the truth seems to be that, wintery weather aside, the recovery is still on track.

As David Smith highlighted in The Times this week, “the monthly purchasing managers’ surveys, produced by Markit for the Chartered Institute of Purchasing and Supply, show the three sectors that drive the economy — services, manufacturing and construction — all bounced back sharply last month after December’s weather-affected slump.”

Not only that, but The Shadow MPC, run by the Institute for Economic Affairs, voted 5-4 in favour of an immediate rise to 1%!

Credibility is the key word on many people’s lips and the longer the MPC allow inflation to climb, the more pressure it will be under. Perhaps the language of the Governor Mervyn King needs to change slightly, rather than stoically sticking to one point of view, showing some flexibility in considering all options. After all a rate rise can always be followed by a reduction to help get the balance right.

It seems likely, however, that they will tough it out until reviewing the latest inflation figures and probably the next set of GDP stats.. In other words, pencil in a potential rate rise in May.

On the mortgage front many of the expected future rate rises are already playing out, with lenders still increasing their fixed rate products on a regular basis. Whether we see increased competition returning to the mortgage market to offset these rises is unlikely in the short-term.

Fixes at 2.65%, (4.24% APR) for 2 years, 3.49% (5.99% APR) for 3 years and 3.95% (4.0% APR) will no doubt not be around for long.

Comments are closed.