BoE interest rate consensus ‘likely to stay the same next month’

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The Bank of England's Monetary Policy Committee is likely to keep the rate of interest the same next month, it has been said.

Glasgow, United Kingdom, August 19, 2011 — Opinion regarding keeping the current rate of interest static is likely to remain unchanged in the next few weeks.

This is according to James Roberts, director at foreign exchange and international payment solutions provider PureFX.co.uk, who claimed the Bank of England’s (BoE’s) Monetary Policy Committee (MPC) is probably going to maintain the current pattern of keeping the official rate paid on commercial bank reserves at 0.5 per cent.

He noted that it is wise to look at the MPC’s minutes on the subject, as this indicates what ideas are being floated by the banking experts, for instance, printing more money or if members are considering voting for a rates rise.

“At the moment neither of those would apply. I imagine when the minutes come out in a few weeks’ time the voting patterns will be exactly the same as they were in the previous month,” Mr Roberts observed.

Simon Lambert, personal finance journalist at This is Money, explained how the decision to keep the rate of interest the same will affect consumers with mortgages.

He noted that economists are predicting the first hike taking the rate above the record low of 0.5 per cent could come as late as July next year, with subsequent rises expected to be gradual as the BoE is fearful of damaging the so-far feeble recovery.

When this change is made, mortgage costs will be affected, but for but for now, speculation as to when these rates will increase has resulted in market swap rates to falter.

Five-year swap-rates have dropped from 3.07 per cent on April 5th this year to August 4th and mortgage rates have significantly fallen since the beginning of July, with five-year swaps calculated to be 2.53 per cent on July 1st.

Money market costs relating to mortgages are typically in-line with the BoE base rate, currently mortgage lenders’ confidence levels and their access to funding is just as important as rates rises, as their situation has resulted in the requirement to provide eye-watering deposits and high margins on mortgages above financial market rates.

In addition, borrowers are unsure as to when the mortgage rates will hit their lowest ebb and that there is an element of risk in during these straitened times as lenders boost rates to adhere with financial authorities’ demands and to protect themselves from bad debts.

“That fear factor will remain for years to come, so don’t expect a return to the easy credit days before 2007,” Mr Lambert remarked.

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