Bank keeps interest rates on hold

13 April 2012

MILLIONS of homebuyers will be relieved today following the Bank of England's monetary policy committee's decision to keep interest rates on hold at 4.5%.

The decision, at the end of the nine-strong MPC's two-day meeting, follows two successive monthly increases which were aimed at cooling down the runaway house price boom and getting consumer debt under control.

Most economists in the City expected the Bank to keep rates on hold. But it is widely expected that with fears growing that the economic recovery is leading to a build-up of inflationary pressure, the MPC will raise rates in August.

The MPC has made four quarter point increases since last November.

ABN Amro economist James Carrick was one of the few who expected a rise today, arguing it was better to tighten policy now and foster a softer landing when housing prices ease.

He said: 'Bank of England Governor Mervyn King has hinted that house prices are overvalued and likely to fall. If that's the case, you want to raise rates as quickly as possible. The longer you leave it the more difficult it will be to avoid the problems.'

Ciaran Barr at Deutsche Bank said: 'We still think we are on our way to seeing interest rates of 5% in this cycle and believe the next increase will come in August.'

Short sterling and foreign exchange markets hardly moved after today's decision while the FTSE 100 index was up 6.9 points at 4365.3.

Only a handful of experts forecast a third successive interest rate increase, given signs that rampant house price inflation is already beginning to ease. Before the next meeting in August, the MPC will be able to digest second-quarter GDP figures and will have a new set of Bank of England inflation forecasts.

Business leaders welcomed today's decision. The CBI's Ian McCafferty said: 'Business needs a breathing space to allow the impact of the last increases to take effect. Rates are likely to have to edge up further later in the year, but for now the Bank need be in no hurry.'

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