Sentance votes for rate rise again

Nia Williams

August 18, 2010

The member of the Bank of England’s Monetary Policy Committee (MPC) voted to raise the Bank base rate to 0.75% from 0.5%, mainly due to the pressures of dealing with high inflation.

It is the third month in a row that Sentance has called for a rate rise.

The other MPC members at the meeting all voted for rates to be held at 0.5% for the 17th month in a row and analysts believe that rates will remain at that level until 2011.

Nick Hopkinson, director of Property Portfolio Rescue, said: “It is a worry that the Bank of England is continually being shocked by inflation, month after month. All the factors driving inflation currently such as increasing VAT, currency changes, higher fuel and food costs are widely known by anyone filling up with petrol or buying bread.

“Many households are struggling with higher prices and low/no pay increases currently as austerity Britain gets into full swing following the election result.

“Reading between the lines of the minutes, it appears the Committee is being ‘gun-shy’ in addressing the obvious inflation threats by raising interest rates for fear of slowing further any recovery.

“It can only be a matter of time before they need to act to retain credibility on their primary inflation watching brief.

“Anyone worried about their future mortgage affordability should be planning and saving hard now.”

David Brown, managing director of LSL Corporate Client Department, commented: “Although inflation dropped away slightly in July, it remains a long way from the MPC’s 2% target. And with the forthcoming introduction of a higher VAT rate, it’s unlikely to drop any time soon.

“There is a very real concern of an interest rate rise sooner rather than later. The MPC once again held its collective nerve and kept the status quo, and that must continue until the housing market is once again on stable footing. We haven’t yet felt the full brunt of measures outlined in the budget. And although the labour market – and the wider economy – have performed above expectations so far this year, we are not yet out of the woods.

“It’s clear that a rise in interest rates too soon would be a step in the wrong direction for the housing market – and threaten the current fragile recovery of the lending market. What’s more, mortgage finance remains the fundamental obstacle for property investors and raising the base rate would only exacerbate the problem, making buy-to-let products even less affordable.”

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