Base rate rise threatened as inflation gathers pace
by Gill Montia
The mortgage misery of the credit crisis looks set to continue as the Bank of England revealed today that inflation stood at 3.3% in May, raising fears that the Bank may be forced to increase the base rate above its current level of 5%.
The Consumer Prices Index (CPI) is used to calculate the level of UK inflation, which is now at its highest since 1997.
May saw a 0.3% rise on the April figure, slightly above analysts’ expectations of 0.2%.
However, the CPI excludes mortgage costs, so for homeowners a better measure of the cost of living is the Retail Prices Index, which shows inflation rising to 4.3% in May, up from 4.2% in April.
The increase was tempered by lenders passing on April’s quarter point decrease in the base rate.
Policymakers will be keen to keep the base rate at 5% in July because an increase would impact on the already difficult UK mortgage market and heighten the chances of a property market crash.
Last week, money market turbulence prompted 12 mortgage lenders to raise interest rates and from today, Nationwide has increased rates on many of its fixed and tracker loans by up to 0.5%.
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