Bank of England hold interest rates at 0.5%

April 9th, 2009

Interest rates remain at 0.5% - www.compareright.com

The Bank of England have today announced, as widely predicted, that interest rates will remain at 0.5%, ending 6 months of consecutive interest rate cuts. April is now the first month since September 2008 that the Bank’s Monetary Policy Committee has decided not to drop the Base Rate. But what does it mean for us?

Are we seeing signs that the worst is behind us?

It really is too early to say, but many believe that we are certainly at or nearing the bottom of the current ‘dip’. On the other hand, there are those who believe that further reductions in rates would actually harm the economy, rather than improve it. Whilst the initial interest rate cuts were welcomed by most, the latest cuts appear to have done little more than spread panic and fear amongst the financial markets. The Bank of England’s decision to leave interest rates on hold, is simply a message to say ‘we have now done our job, and things are now getting back on track’. Whether this is true remains to be seen but any move that even begins to restore the countries shattered confidence will be welcomed.

Mortgage holders and savers will see no change following the latest decision, unless individual lenders and banks decide to alter their rates, but on the whole, it will be a sigh of relief that we are entering a more ‘normal‘ phase following months of turbulence.

What next for interest rates?

Again, opinion varies but we can certainly expect to see a period of stability, with economists agreeing that rates are unlikely to get any lower. The question is when, and it is a question of when and not if, will rates start to rise again?

“Looking further forward, we continue to anticipate rates remaining at 0.5% for an extended period of time - in our forecasts that means until early 2011,” said Malcolm Barr, an economist at JP Morgan.

“Rates are at the absolute bottom here,” David Page, economist at Investec Securities told MSN. “The next move is bound to be up and that could come in the first quarter of 2010,” he added.

There are signs that the economy might be improving again, with an increase in mortgage activity and house sales, certainly contributory factors in the Bank of England’s decision. And recent news that HSBC are allocating £1 billion to lend to homeowners and RBS/Natwest stating that they will make £10 billion available to small businesses are all signs of a growing confidence within the financial sectors.

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