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10 September 2007
Consumers in the UK breathed a sigh of relief earlier this week after the Bank of England announced that the interest rate would remain stable at 5.75%, which means no rise in repayments for those with variable rate mortgages and loans.
Interest rates have risen five times in the past year, taking the base rate from 4.5% last August to 5.75% this July following five quarter point rises.
However, after Thursday's Monetary Policy Committee meeting it was announced that there would be no further rise, at least for the short term.
Many experts have been predicting that there will be at least one more interest rate rise this year, which would take the base rate up to at least 6%. However, officials state that this is looking less and less likely, and this is because inflation has now fallen within government targets.
The target for CPI inflation is 2%, and in March of this year it hit a ten year high of 3.1%, which was way above the government's target. However, this has now fallen to 1.9%.
Another reason that many now think interest rates may remain stable is because of the global credit crunch that has stemmed from rising interest rates and rocketing levels of defaults within the sub-prime sector in the United States.
A statement that was issued along with the announcement from the Monetary Policy Committee meeting suggested that members had taken into consideration the effects of the credit crunch when making a decision on whether to keep rates as they were.
Some experts also stated that with the housing markets and levels of repossession the way that they are, along with the effects of the global credit crunch, the Bank of England needs to put any further rises on hold for the time being rather than just for this month.
One official from the British Chambers of Commerce stated: "Simply keeping rates on hold today is not enough, if the decision is interpreted as a mere short-lived postponement. The MPC must acknowledge that further interest rate increases should now be off the agenda, at least for the time being."
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