Bank Base Rate Unlikely To Come Down in 2008
The Bank of England is about to announce the interest rate for 2008. The IMF downgraded its outlook for the British economy in the face of rising inflation. It said that the Bank had little room for manoeuvre in the circumstances.
As the Monetary Policy Committee (MPC) met this week to discuss where the base rate would be for the forthcoming month, a gloomy report on the British economy made interest rate cuts unlikely for the rest of the year.
The problems of inflation mean that the Bank of England doesn’t have much room for manoeuvre, says the International Monetary Fund. This outlook came as the MPC sat down to decide whether to move the interest rate or keep it at 5% for August. Most experts suggest that the rate will be unmoved for the coming month.
The IMF forecast that the British economy will grow by 1.4% in 2008 and only 1.1% in 2009 – downgrades from previous forecasts, which were 1.75% for both years. With inflation high, and likely to go even higher, the IMF says that the Bank has no possibility of reducing the interest rate to put a boost back into the economy. According to the IMF, inflation in the UK will stay high for an extended period as energy, fuel and food costs continue to rise.
June saw a peak in fixed mortgage rates and these eased back a little in July. However, it appears that few homeowners have benefited. The problem is that while mortgage rates have come down the average fee has gone up by almost £100, so borrowers have made no net gain.
Maritz Research reported findings in a survey saying that over ten per cent of homeowners do not know how they will cope with rising costs in the home. A quarter of homeowners were said to be ‘struggling’.
As Chancellor Alistair Darling indicated that he was looking for ways to help people through the financial problems, a temporary halt in stamp duty is thought to be one option.
It certainly appears that a cut in interest rates will not be coming any time in 2008.
