Print friendly version 9 Sep 2010

Base Rate held at 0.5%

The Bank of England has held interest rates at 0.5%, marking the 18th consecutive month they have been at this historical low. Its £200bn quantitative easing programme was also left unchanged.

The  decision to maintain the Base Rate at its current level was widely expected, with the need to support the economy amid fears of a double-dip taking precedence over inflationary fears.

The Consumer Price Index measure of inflation was 3.1% in July. Inflationary concerns - the current rate is well above the 2% target and there are growing fears of further price rises - has prompted Bank of England Monetary Policy Committee member Andrew Sentance to vote for a rise in rates to 0.75% for the past three consecutive months.

But lingering doubts about the strength of the economy in the face of pubic sector cuts have prompted many observers to forecast rates will be held at their historical low until next year.

Stuart Law, chief executive of property investment group Assetz, said:

"I expect interest rates to stay low for a very long time to come. This will go some way in compensating for the recent tax increases and spending cuts, which would otherwise have a much greater drag on the UK's recovery.  

"I would not be surprised if the Base Rate is still at 0.5% at the end of 2011, although there is a 25% chance it will be at 2% by this time. This is great news for homeowners on lifetime tracker mortgages and is likely to encourage even more buyers into the market.

"However, despite low rates, small and medium sized businesses are still being denied the funding they need and this will have an inevitable impact on UK growth prospects."

STAY UP TO DATE: Subscribe to email alerts Subscribe to RSS