Millions of homeowners can breathe a sigh of relief as the Bank of England has voted to keep interest rates at 0.5% for another month.
The decision means interest rates have stayed at pegged at the record low for two years – but
the real question is when will they rise?
The Bank’s Monetary Policy Committee has fought off extreme pressure from economists,
politicians and financial policy critics overseas to keep the rate unchanged in the face of rising
inflation and poor economic performance.
Last month, two of the committee members pushed for rates to increase by 0.25% to 0.75%.
Bank policy makers, notably the governor Mervyn King, have indicated they are willing to let
inflation rise for the time being rather than harm growth and output.
In a speech earlier this month, Mr King apologised to savers, who he said were bearing the
brunt of inflation by receiving low rates of return in response to their prudence.
Mortgage lenders expect to see rates go up to 1%
The Bank also voted to keep the brake on quantative easing by keeping the limit at the current
£200 billion.
Mr King has also disclosed he expects inflation to keep rising – to at least 4%-5% – in April or
May, while recent increases in VAT and fuel, gas and electricity work their way through the
figures.
Nevertheless banks and building societies expect mortgage interest rates to rise to at least 1%
by the end of 2011.All though the increase is small, that represents a 100% rise in mortgage
costs for millions of homeowners who are already financially stretched by the aftershock of
recession.
Fixed rate mortgage costs – an indicator of how lenders see the economy performing – are
already at their most expensive for six months.
