MPC holds base rate at 5%

Marcel Le Gouais
07-Aug-2008
The Monetary Policy Committee has held base rate at 5% today.
Analysts had predicted that this month's decision was going to be one of the toughest votes yet for the MPC, with economic growth slowing substantially and inflation rising sharply.

Members were split three ways in the last decision over base rate. Although the majority of members voted to hold rates in July, one supported a cut, while another backed an increase.

Jonathan Cornell, managing director at Hamptons International Mortgages, says: "Another month and further stalling tactics from the MPC. Inflation crept ever higher in July, reaching 3.8% and carrying warnings of inflation nearing closer to 5% by the year end, yet the MPC still remains undecided on the path it should take.

"Holding the base rate, while offering relief from a rate increase, will do little to ease borrowers’ pain. The average monthly mortgage repayment has been gradually increasing and with increases in energy and food costs in July, borrowers will have to stretch themselves even further this month."

Cornell adds: "There seems to be no happy outcome at the present time. However, it will be those that keep their finances in check and seek savings, who will be in the best position to ride out any further rises to rates or inflation; depending upon the MPC’s eventual leaning.”

Richard Lambert, director-general of the Confederation of British Industry , says: “The latest data show the slowdown in UK economic activity gathering pace, and business and consumer confidence falling further.

"However, with inflation heading higher in the next couple of months, the BoE is right to leave rates on hold for the time being.”

Ross Bowen, managing director of Connells Survey & Valuation, says: "While a lower base rate would take some of the pressure off lenders, allowing them to lower their rates more, it’s not a surprise that the MPC decided to hold today.

"It’s far more important that the Bank of England and government work towards improving market liquidity, allowing more lenders to drop the rates they’re offering."

Bowen adds: "As banks begin to repair their battered balance sheets, we are seeing a little confidence return to the market – interbank lending rates have dropped from their high.

"Abbey’s move yesterday to pass on rate cuts to borrowers is a flicker of hope for those trying to get a foot on the property ladder. It’s great to see lenders make the effort to pass on cost savings to their customers.”