The Bank of England's Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%.
The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.
Nick Hopkinson, Director of property company, PPR Estates, said:
“The Bank of England is clearly not going to be able to increase interest rates this year, even though inflation is running away from it. UK PLC is still very weak and any increase in borrowing costs would almost certainly tip the scales back into recession.
"Whilst keeping interest rates artificially low may be the easiest way of ‘salting away’ the huge national debts it is terrible news for savers and no real comfort for many thousands of struggling borrowers whose debt interest costs are typically circa-5% plus anyway these days.
"Ironically, it’s only high earners with huge deposits who don’t really need the money who can borrow competitively at the moment.
“The Government’s austerity cuts continue to bite, unemployment continues to move upwards and household incomes and cash-flows will continue to come under increasing pressure for the remainder of 2011.
"The house sale market has virtually ground to a halt this spring with transaction volumes falling back to the lowest levels seen since the credit crunch outside London recently.
"I therefore expect house prices to fall by 5% this year, even if base lending rates remain artificially low. If interest rates are forced up due to the MPC needing to retain credibility on its inflation management brief, then things will get a lot worse for many struggling sellers.”
Richard Barker, mortgage manager at N&P, comments:
‘Today's decision to leave the Base Rate unchanged at 0.50% was fully expected across the industry. Although the Consumer Prices Index (CPI) inflation rate (the Government's target measure) increased to 4.5% in April from 4% in March, the general consensus is that the economy still remains in a relatively fragile position.
"Many economists now believe that Base Rate may not rise until 2012. So for the moment, those on a variable rate, or tracker have more time to consider their options. The news will also come as a welcome relief to many potential first-time buyers looking to get on the first rung of the housing ladder."
Ian McCafferty, CBI Chief Economic Adviser, said:
"This decision is not surprising as the MPC is waiting for clearer signs that growth is gathering pace before changing its stance on interest rates.
"Although the recovery is expected to make further headway into the second half of the year, households continue to face particularly challenging conditions, and business confidence remains fragile.
"However, with further price pressures in the pipeline, the Bank needs to remain vigilant to prevent inflation expectations picking up further. In acting sooner rather than later, the Bank can ensure that future rate rises will be only gradual and modest. At any stage in the cycle, the last thing business needs is an abrupt and aggressive set of rate hikes."
Chris Towner, director of FX Advisory Services at foreign currency specialist HiFX comments:
"As expected and for the 27th month in a row we have seen the Bank of England leave interest rates on hold at their ultra low levels of 0.5% as the MPC choose to put their growth fears ahead of their inflation fears. The reaction in Sterling was limited as this had been fully priced in and it is not until the fourth quarter that these meetings are going to become interesting again.
"Next week we have the inflation and employment data from the UK. How high does inflation need to go for the MPC to raise rates? These economic releases next week will prove very interesting as to whether the market expects a rate increase at the end of this year or into next year."
Commenting on the base rate decision by the BoE, Grenville Turner, Chief Executive of Countrywide, the UK’s largest property services Group said:
“The decision by the MPC to maintain the base rate at 0.5 percent this month is the right decision. The questions is how long this will continue, which remains uncertain.
We still anticipate a base rate increase by the end of the year of possibly 0.25 percent, however I will not be surprised if economic pressures push this into Q1 of 2012.
"Interest rates will inevitably go up at some point, as the UK’s largest mortgage broker the feedback we get is that the biggest dilemma for borrowers remains whether or not to opt for a fixed rate mortgage. We have seen a growing number of borrowers opting for fixed rate mortgages in the first half of the year. In May 2011, 83 percent of all applications were for fixed rate mortgages, in May 2010 the figure was 65 percent.
"Whilst there is no significant sign of improvement in the volume of transactions, we are seeing an increase in regional variations in transaction levels with London and the South East continuing to see higher level of activity than the rest of the country. The market remains tough and the dilemma for the Bank of England is that the longer they delay increases in interest rates the more aggressive they are likely to be when they arrive”.
