Interest rates stay at 5%
9:21pm Thursday 7th August 2008
Homeowners struggling amid the credit crunch were given no relief after policymakers voted to hold interest rates at 5% for the fourth month in a row.
The decision by the Bank of England's Monetary Policy Committee (MPC) is likely to have been one of the toughest in recent times, with members having to balance deeper economic gloom with expectations of rising inflation.
Most economists believe rates will remain on hold for the rest of the year, although a rate rise cannot be ruled out as inflation may hit 5% this autumn, pushed higher by the latest round of gas and electricity tariff increases.
The warning comes despite mounting signs of recession and gloom in the housing market. Britain's biggest mortgage lender, Halifax, revealed that property values had fallen by 8.8% in the past year after sliding a further 1.7% in July.
Borrowers are finding it increasingly difficult to keep up with repayments, with home repossessions rocketing by 40% in the first three months of the year, according to Financial Services Authority figures earlier this week.
However, homeowners may find some welcome relief as lenders move to reduce rates in spite of the no-change in the Bank base rate. Nationwide announced interest rates cuts on some of its fixed rate products.
A number of other lenders have already made rate cuts on mortgage products - including the Woolwich and Lloyds TSB and its mortgage arm Cheltenham & Gloucester - in a sign that the peak in borrowing costs may have passed.
Businesses said the Bank was right to leave rates on hold. CBI director general Richard Lambert said: "The latest data show the slowdown in UK economic activity gathering pace, and business and consumer confidence falling further.
"However, with inflation heading higher in the next couple of months, the Bank is right to leave rates on hold for the time being."
Manufacturers also said they accepted the decision, but added that the case for a cut was growing.
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