The base rate of interest has now been held at an even five percent as announced by the Monetary Policy Committee (MPC) of the Bank of England.
This was the sixth time in the current year that a decision was taken by MPC about the rates and the fourth time that the base level has been maintained of the rate of interest. The drop of 0.25 percent had been announced in April from 5.25 percent. This decision was taken when the food prices soared higher and the strength of the Pound was depreciating.
The MPC wants to hold back further inflation by its moves and this will enable the consumers to afford their demands of mortgage and loan repayments and they are not strained by them. Abbey, the financial services provider commented on the decision that MPC members would have surely considered that the growth output was slowing from its signs and it needs to be measured to have an idea of future inflation and further contractions in economic activity.
Other details of the meeting will be made public on June 18th and they will show the actual reasons behind the decision taken. Also, there can be a further cut in the rates later in the year. Also, the decisions which are taken in future will be influenced by the coming months’ rate of inflation.
The Barclays bank thinks that the MPC is in a difficult fixture and has to maintain the dual responsibility to promote economic growth and cut inflation. It states, “The economic growth in UK has been moderated. Credit availability has reduced due to credit crunch and the housing market is slow. High street has softened. Potential income is low and the level of inflation is growing higher. There is great possibility that the MPC will further cut down the interest rates in the later part of the year.”
The level of inflation is currently set on three percent. A consumer price index decision is expected on June 17th. The decision to hold the rates was taken to keep inflation low in the weakened economic outlook, says the Council of Mortgage Lenders. However, there is a tightening in approval of UK loans and pressures of affordability need to be taken care of. The group also stated that the liquidity scheme of the Bank of England would liberate some pressure which is faced by the UK loan providers and help the borrowers in the later part of the year.
When the year began, the base rate was 5.25 percent. However, with two cuts of 0.25 percent, the interest level came down to a low which was not seen since 2006. This development was a relief for the consumers, as said by Sean Gardner, chief executive of Money Expert.
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