Money News

Rates held at 0.5% for 17th month

By Dominic Welling dominic.welling@consumerchoices.co.uk

The Bank of England base rate has been kept at a record low of 0.5 per cent for the last 17 months and many analysts predict it could stay that way.

The Bank of England base rate has been kept at 0.5% this month, despite rising inflation.

The rate has stayed low despite high inflation, which at 3.2% in July, is well above the bank's target rate of 2%.

Christina Weisz, director of foreign exchange specialists, Currency Solutions, said: “It is unlikely that we will see a rate rise until well into 2011.

"The MPC is acutely aware of the impact even the smallest rate rise could have on already stretched consumers, specifically those surviving only on low mortgage payments and debt.

"The Monetary Policy Committee is of the view that even the smallest rise in rates could trigger a dangerous domino effect.”

Mervyn King, governor of the Bank of England, said last week that it may be a “considerable” time before the benchmark interest rate of 0.5% returns to “normal”.

Ray Boulger, senior technical manager at John Charcol, said: “This also begs the question what is normal?

“The new normal for the next five - 10 years may be very different from the old normal.”

Furthermore, this week's half yearly bank reporting season has also provided evidence that increasing bank rate too quickly could have a very negative impact on the economy.

According to Boulger by increasing the base rate too far, too quickly, it could easily reverse the trend of put banks’ balance sheets under more pressure and reduce their ability to lend.

Even less lending by the banks will stall the economic recovery.