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Rate Rises In Clear View, But Not Just Yet


After another month of “will they or won’t they” and “they should, they really shouldn’t” economic and political discussion, the Bank of England’s’ Monetary Policy Committee, (MPC) have just about held firm yet again and decided to keep Base Rate on hold.

After the almost unprecedented 4 way split revealed in last month’s meeting minutes, it really looks like the Governor Mervyn King has a fight on his hands to keep any sense of unity and these public splits do the Bank no particular favours.

At polar opposites you have Andrew Sentance, a long time proponent of an early rise and Andrew Posen, who still wants to print more money. Of the other two members voting for a rise we now have none other than the Bank’s Chief Economist, Spencer Dale, the person who actually puts the inflation report together.

Although Mr King has recently come out fighting with some strong speeches he is clearly a man under pressure and all bets are pretty much now off for a rate rise in May at the latest.

There has also been some strong political talk about supporting business and enterprise perhaps designed to take some pressure off the calls for an immediate rate rise.

Whether or not the MPC finally elects to increase rates lenders have already priced in an expected change. In fact maybe they have overpriced slightly, as a few lenders have actually reduced their rates again, albeit by a much smaller margin than they initially increased.

The good news is that lending criteria has started to ease slightly, as lenders become more comfortable to take slightly more risk. Whilst this will not change overnight, the consequence of this should be that mortgage finance starts to become slightly easier again in the coming months.

Lenders still seem to playing a week-to-week game, with rates coming and going at almost alarming speed, and with Legal & General reporting that 90% of mortgage holders are on some form of variable rate, which is an astonishing statistic, there are many who no doubt should be looking for the sanctuary of a fixed right now.

Fixes at 2.79%, (4.20% APR) for 2 years, 3.95% (4.10% APR) for 3 years and 4.49% (4.70% APR) will no doubt not be around for long. It really is now a matter of time.

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