Brokers are uncertain whether the latest interest rate freeze means inflation is finally under control.
John Postlethwaite, consultant at financial adviser Punter Southall, says: “It was widely predicted that the Bank of England would hold interest rates this month, so today’s announcement is no surprise.
“With the number of mortgage approvals dropping 1% in January from the 2006 level, and the cost of domestic energy also coming down, the government’s inflation figures should show signs of recovery.
“However, The British Retail Consortium has recently reported that the latest interest rate rises have not yet dampened consumer spending. So there is still pressure on the inflation figures, which could still mean interest rate rises in the future.
“It is widely expected that there will be at least another 0.25% rise in interest rates this year, which on average would put an extra £20 per month onto a typical £100,000 mortgage.
“Currently the Bank of England has raised interest rates 10 times since its all time low of 3.5% in July 2003, and the cost of borrowing has risen by 150%.
“For a £100,000 base rate tracker interest-only mortgage it means that the monthly cost has leaped by £145 over the same period.”
Ray Boulger, senior technical manager at John Charcol, says: “This decision, whilst expected, suggests that when the February Consumer Price Index is published next week it will not contain any nasty surprises.
“Some more positive news over the last month on the factor the MPC is expecting to be particularly material in bringing inflation down later this year has been the confirmation from some gas and electricity suppliers not only of further significant falls in prices but also reductions being implemented earlier than had been expected.
“The combination of last year’s increases falling out of the year on year CPI comparison and this year’s decreases will provide a double benefit to the inflation figures.
“Whilst the worldwide turbulence in equity prices over the last fortnight was probably not a major influence in the MPC’s deliberations it will have intoned a note of caution. Possibly more important will have been increasing concern about the US housing market.
“Over 30 US mortgage lenders have gone bust or got into severe financial difficulties over the last few months on the back of the toxic mixture of house price falls and sharp rises interest rates.
“The impact on an already weak housing market of lenders tightening criteria and seeing funding costs increased, or even having them withdrawn, means the situation is likely to deteriorate further.
“A weaker housing market will result in a weaker economy and when America sneezes the rest of the world catches a cold.
“The possibility of a forthcoming depression in the US, which Alan Greenspan rates as a one in three chance, with its consequent impact on us, won’t have been ignored by the MPC.
“As far as the UK housing market is concerned early signs of a slowdown in the rate of increase in prices are emerging as the impact of the three recent Bank rate increases puts more pressure on prospective purchasers.
“In general purchasers are increasingly reluctant to bid prices up but there is still a shortage of property for sale in many areas.
“This is likely to change shortly as many people thinking of selling will put their property on the market before the end of May to avoid being forced to incur the cost of a Home Information Pack.
“Swap rates have declined a little over the last month and the market is no longer factoring in the probability of Bank rate rising a further 0.5% to 5.75%, but it is still fully reflecting the expectation of one more increase to 5.5%.
“However, the market often gets carried away and overdoes expectations of Bank rate movements (both ways) and whilst one more increase to 5.5% is still entirely possible the likelihood of 5.25% being the peak of this cycle has increased.”