Base rate will remain on ice for months, says Boulger

12 July 2010

The Bank of England’s Monetary Policy Committee has voted to keep the base rate on hold at 0.5% for the 16th consecutive month, and it is being predicted that it will not be raised this year.

In June, MPC member Andrew Sentance voted to raise rates to 0.75%, the first member to call for a rise since August 2008.

But Ray Boulger, senior technical manager at John Charcol, says it is now likely that the base rate will not increase during 2010.

He says: “Since last month’s MPC meeting the Consumer Price Index has fallen by 0.3% to 3.4%. Probably the most significant influence on the timing of any base rate increase since last month’s meeting was the emergency Budget.

“The market has responded positively to the confirmation provided in the Budget that this government has adopted a more prudent policy than the previous one, and swap rates are hovering near all-time lows.”

Boulger says that this, combined with the euro coming under severe pressure and receding worries about the UK losing its AAA credit rating, has resulted in a rise in the value of sterling.

He adds: “All this means the base rate will need to stay low this year.”

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