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Sunday 09th of January 2011
September 7, 2007    

Base rate reprieve

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by Gill Montia

The Bank of England’s decision to keep the base rate at 5.75% in September will bring relief to homeowners, especially as it is the second consecutive month in which there has been no change.

The bank’s Monetary Policy Committee (MPC) released a statement on its decision; an unusual step because such statements normally accompany a change in the base rate.

In its statement, the MPC referred to “tentative signs of a slowing in consumer spending”, referring no doubt to a slowing down of the housing market and falling High Street sales.

However, other remarks, such as the observation that “indicators of pricing pressure remain somewhat elevated”, have led some economists to believe that interest rates could still increase to 6%.

The MPC’s decision would also have taken into account the recent turmoil in the financial markets resulting from the US sub-prime mortgage crisis.

Only this week the Bank of England agreed to release reserves if there is no improvement in borrowing conditions between banks.

However, the bank has pointed out that its mandate is to meet the Government’s 2% target for inflation and not to rescue the markets.

On this occasion the MPC judged that no change in the base rate was necessary keep inflation on track to meet the target in the medium term.

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