Base rate held at 0.5 per cent

The MPC first dropped the rate to 0.5% in March 2009, where it has remained since.

MPC member Andrew Sentance has voted for a rate rise for the past two months and is likely to have maintained that view this month.

Most in the mortgage industry are relieved to see the base rate held this month, as weak lending volumes, shaky house prices and the impending public sector cuts continue to put pressure on economic recovery.

Robert Sinclair, director of the Association of Mortgage Intermediaries, said the MPC was right to hold rates.

He added: “They should stay on hold because all the indicators are that inflation is moving in right direction albeit slowly. The Governor of the Bank also still feels there are question marks over stability and growth that are preventing a rate rise now.”

Ray Boulger, senior technical director at John Charcol, said: “All the signs are we’ll see base rate stay at 0.5% for long period to come, especially following yesterday’s services sector data which showed a disappointing trend.

“In terms of the housing market I think we’ll see prices flatline for some time and activity remaining at similar levels to now. Public sector cuts are also bound to depress confidence and people are much less likely to move if they’re concerned about economic recovery and their jobs.

“I find it hard to believe that confidence will pick up until the banks have more money to lend, and there are still too many factors restricting them – repaying government debt and increasing capital ratios to name two.”

Grant Stevens, managing director at lead generation firm Leadbay said the rate staying at 0.5% was good news for brokers.

He said: “Even a base rate staying flat stimulates consumer enquiries because of the media hype and industry comment that surrounds this decision. People want to know what this means for them, their finances and how long the base rate is likely to stay at this level.

“That when they then seek out advice from the broker. We just need more products from lenders to be able to satisfy these enquiries.”

Hawkish

Some in the industry called this morning for an incremental rise in rates, with Intermediary Mortgage Lenders Association executive chairman Peter Williams, holding the view that a slow and steady rise in rates would help to stabilise the economy rather than deliver shocks as many fear.

But Sinclair disagreed. He said: “The pricing of retail funds is already significantly above base rate and I also think it’s overestimated how many people are relying on low interest rates. More than half of borrowers on the major lenders’ books are still on fixed rates, so there are fewer people than we might imagine on variable rates relying on the low base rate.”

Boulger also highlighted another reason for the MPC to have a vested interest in keeping rates low. He said: “One other major factor keeping rates low is the recovery of the banks. The main reason the banks have been reporting such large increases in profit this week is because of a significant reduction in their bad debt provision, which is clearly good news.

“But that has been down to low interest rates, and if we see rates rise, it will hurt the banks. I’m sure the Bank of England is mindful of the fact they need to keep the banks in a position to keep lending.”