Base Rate remains static

Ramesh Sharma

March 11, 2006

Mehrdad Yousefi, head of intermediary mortgages at Alliance & Leicester (A&L), was unsurprised by the decision. He said: “Once again interest rates remain on hold and many expect rates to remain unchanged for the next few months. Clearer evidence of the underlying strength of household spending and wage settlements is required before the Bank of England is confident that any change in a direction of interest rates will not have a detrimental impact on inflation or on overall growth in the UK economy. As a result, most industry commentators expect rates to remain at current levels – with some pointing towards a cut in the Spring based on mixed economic data seen so far this year.”

Ray Boulger, senior technical manager at John Charcol, added his expectation that rates would be cut in the near future. He said: “As February progressed and the latest month’s economic figures were released, it became increasing clear that the MPC would not cut the Base Rate in March. The seventh consecutive static month follows contradictory and, therefore, unclear economic statistics, with the UK consumer showing an ongoing reluctance to spend, despite a modest improvement in the housing market.”

Boulger added: “The recent further large hike in energy prices and the well above inflation increases in council tax due for next month, will curtail consumer expenditure further, although of course these increases will impact negatively on the Consumer Price Index (CPI).”

“The Bank of England’s view of the likely strength of the UK economy over the next few months is significantly more bullish than that of most outside economists and it appears the MPC will wait for further evidence of a slowdown before sanctioning a rate cut. However, we firmly believe that this is a question of when, not if, the Base Rate is reduced.”

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