Bank Rate Rise Fears Reduce
Bank of England Governor Mervyn King says that he does not want to risk slowing the economy down too much by making rate rises too impetuously. A hold of the base rate for some months would be good news for mortgage holders.
Fears that the Bank of England base rate may be about to rise again were eased somewhat by comments by the Governor, Mervyn King.
A rise in base rates had been expected as the Bank attempts to conquer inflation, and the effect of a base rate rise would only mean more bad news for Britain’s mortgage holders.
However, Mervyn King told the Commons Treasury Committee that although the economic slowdown would need to be enough to curtail the rise of inflation, a slowdown needed to be avoided that was so pronounced to pull inflation down, not just to the target, but below it.
Michael Fallon, a Conservative member of the committee said that the Governor had ‘lost the plot’. King, he said, was paid to keep inflation under control, not to write letters explaining why it was not.
Mr King responded by saying that there was the chance of a ‘deep recession’ if aggressive action was taken too vigorously. He did expect the official inflation figure to rise above 4% this year, but said that it would be brought under control after that.
Analysts in the City interpreted Mr King’s words as implying that there would be no rate rise in the near future, but that changes in the medium term were likely to be upward.
Members of the Monetary Policy Committee, which meets in the first week of every month to set the base rate, seem to be adopting a ‘wait-and-see’ attitude as they look for more data before they raise the rate. Committee members economist Tim Besley, adviser Kate Barker, deputy governor John Gieve and executive director Paul Tucker all decided against raising rates, but admitted they had considered it.
At least in the short term, the lack of base rate rises will be good news for mortgage holders. It would be nice to see mortgage rates settle down for a while.
