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Bank holds base rate and calls time on QE

The Bank of England’s Monetary Policy Committee has voted to keep interest rates at 0.5% and brought quantitative easing to a halt.

The Bank has used up its £200bn budget on buying up government bonds in its attempt to boost the money supply, having spent £200.24bn on quantitative easing so far.

Interests rates have now been at 0.5% for 11 months in a row.

Ben Thompson, director of mortgages at Legal & General, says: “More bullish elements within the MPC have been hinting that interest rate rises are to come later this year and this is looking increasingly likely.

“However, the challenge now facing us is how to ensure that the fragile recovery which we are experiencing is not killed off before it has gained a proper foothold.

“With consumer confidence on the up, house prices recovering and signs of life in the mortgage market, we don’t want a relapse and a continued reliance on quantitative easing life support.”

The MPC notes that GDP in Q4 achieved a meagre 0.1% growth, pulling the UK out of recession but only just.

It adds that inflation is likely to fall below its 2% target “for a period”, even though last month’s statistics showed the annual rate of UK inflation as measured by the Consumer Prices Index had jumped to 2.9%.

The MPC says it will continue to monitor the appropriate scale of the asset purchase programme and that further purchases would be made if deemed necessary.

Ray Boulger, senior technical manager at John Charcol, says: “Despite the much bigger than expected increase in inflation in December the indications that it will fall back to the target 2%, and probably lower, within a year negates the need to take corrective action for the current inflation surge.”

Boulger also believes that remortgage business is set to make a comeback, particularly given the recent SVR hikes from several lenders.

He says: “Assuming property prices continue to rise, even only gently, the number of borrowers with at least 20% equity will steadily increase, making a remortgage progressively worthwhile for more people.

“For this reason I expect the dramatic fall in the volume of remortgaging to be close to end and to see a slow increase in remortgage activity this year.”

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  • chris powell 5th February 2010 at 3:52 pm

    Sorry Salil but you must be every young if you don’t remember the major fiascos that happened when such economic policy was solely in the hands of a Chancellor whose primary concern would be political. Perhaps you don’t remember double digit interest rates, raging inflation,Black Wednesday or the recession of the early ’80’s. Think yourself lucky that our economy isn’t so bound up to political expediency or we might end up back where we were in the ’70s or ’80’s and I can assure you that this would be a bad place to be.

  • salil chaudhari 5th February 2010 at 11:13 am

    The BOE was wrong to stop QE programme. It should have continued with another £50-£70bn in chunks of around £20bn due to spare capacity in the economy. Both political parties have pledged to implement fiscal tightening.We are already seeing financial earthquakes in Greece, Spain and Portugal with devastating effects on world financial markets.The Euro will crash further as the multiplier effect spreads to the other Eurozone countries as money flows out of the high budget deficit countries. The government should take charge of the steering of the UK ship from the BOE.