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BankruptcyNews
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 Posted - 09 March 2007 : 15:32:44
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Interest rates remain at 5.25%
Borrowers will see no increase in their monthly repayments for the time-being as the Bank of England today kept interest rates on hold at 5.25%.
The monthly meeting of the monetary policy committee (MPC) ended at midday and, as expected, announced no change to the bank rate.
At the last MPC meeting, members voted 7-2 to keep rates at 5.25%. With inflation figures for February published later in the month than normal - March 20 - there was little new data available to the rate-setters to justify changing their minds this month.
A rise in the cost of borrowing is, however, expected in the next few months. The Bank indicated last month that rates would probably need to rise one more time for inflation to return to its 2% target within two years.
The urgency of a rate rise has been lessened by an easing in inflation, with the consumer prices index measure seeing its sharpest drop since January 2003 when it fell from 3% in December to 2.7% in January.
Analysts' consensus points to May for the next rate rise - which would be the fourth increase since last August.
Howard Archer, chief economist at City research firm Global Insight, said: 'The current turmoil in global markets may have contributed to the decision to hold fire.
'We still expect the Bank of England to lift interest rates to 5.5% in April or May as a precautionary measure aimed at containing medium-term inflation risks. We believe that 5.5% will mark the peak.'
Roger Bootle, economic adviser, at accountancy firm Deloitte, said: 'I still believe that interest rates will rise to 5.5%, most probably in April. And if the incoming news remains strong, one more rate rise thereafter is not completely out of the question.'
Philip Shaw, chief economist at broker Investec Securities, said: 'Minutes to February's meeting suggested that a majority on the committee want to wait to gauge the impact of the previous move, and since last month's meeting there has been scant information to suggest that upside inflation risks are crystallising.'
Retail sales figures dropped by 1.8% in January - the fastest rate for four years, according to the Office for National Statistics. However, this was offset by a bullish report from the CBI last week which suggested retailers had seen an upturn during February.
A near-2% jump in house prices in February, announced today by Halifax, could have put some additional pressure on the MPC.
Strong CBI manufacturing figures may also be a cause for concern as orders reached their highest level for 12 years during January amid strong domestic demand.
Business leaders welcomed today's decision. 'Inflationary pressures are still finely balanced,' said Ian McCafferty, chief economic adviser for the Confederation of British Industry (CBI). 'Indications of restraint in the private sector pay round, combined with the Government's welcome curb on public sector pay will be helping allay inflation concerns.
'Against this in the MPC's considerations will have been rising prices on the High Street and at factory gates, as firms repair battered margins.
'The recent jitters across financial markets have added to the uncertainty and until the economic impact of the Budget [on 21 March] is clear, the Bank's decision to keep rates stable makes sense.'
SOURCE: Adrian Lowery, This is Money
8 March 2007
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Interest rates remain at 5.25 percent
