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Thursday, May 8, 2008

UK interest rates held at 5%

The Bank of England's Monetary Policy Committee (MPC) has decided to leave interest rates unchanged at 5%.

Some in the mortgage industry would have like to see a 0.25% cut but as a company we feel it was the right move. The risks to inflation are to great to warrant a further cut and the effects of the 3 previous interest rate cuts along with the banks recent decision to offer government backed securities in exchange for mortgage backed securities are yet to be seen.

The inflationary fears seem to outweigh the reported decline in house prices and The Chartered Institute of Purchasing & Supply (CIPS) reporting the slowest growth within the services sector since 2003.

Inflation in March has allegedly remained stable at 2.5% but we find that figure skeptical on the basis that this target is set by the Government and takes very little into consideration ie the cost of housing or petrol. The Office for National Statistics says that it looks carefully at what average families pay for goods and services, many of the groups representing the elderly and the low-paid insist that the true rate of inflation is a lot higher than 2.5% or even 3.8%.

Some had thought that rates may have been reduced to stave off an economic recession which is still very possible. The news will be disappointing for homeowners who are already up against the wall and struggling to source new competitive mortgage deals.

It should also be remembered that MPC members have a duty to combat inflation rather than to prop up growth.

If you have any questions on this article or others like it, please feel free to contact Solution Mortgages on 0845 123 1260, or visit us online at www.solution-mortgages.co.uk