Prospect of base rate rise recedes

It has been claimed that a base rate cut could be on the cards, despite creeping inflation.

Last week it was reported that inflation, which in February fell from 3% to 2.7%, has changed course with a 0.1% increase to 2.8%. The news sparked speculation of another base rate rise in April, taking the rate to 5.5%.

But Ray Boulger, senior technical manager at John Charcol, says: “We should not get too excited about a 0.1% increase in inflation.”

Instead he points to the minutes of the Monetary Policy Committee March interest rate vote, published last week, which reveal that although eight of the nine MPC members voted to hold the rate at 5.25%, David Blanchflower went against the grain.

He voted for the rate to be cut by 25 basis points.

Boulger says last month’s vote is one of the most interesting decisions the MPC has ever taken as, although he expected the majority vote to be in favour of holding the rate, he thought a dissenting voice would be in favour of it rising, not falling.

He says the minutes mean he is more cautious about the prospect of another rate rise.

Boulger adds: “The probability is that the base rate will not reach 5.5%. In fact, I think we can bring forward our expectations of the timing of a base rate cut.”