Bank interest rate stays at 0.5% despite economic worries

Bank interest rate stays at 0.5% despite economic worries

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Bank interest rate stays at 0.5% despite economic worries

The Bank of England base rate remains unchanged despite economic pressures to step up a gear.

The Bank’s monetary policy committee voted to keep the rate at 0.5% for a record 22 consecutive months.

Mortgage payers will breathe a sign of relief as any change in the low rate means larger repayments on borrowing.

Monthly payments on a £100,000 interest only mortgage leap by £20.84 a month if the bank base rate is increased by 0.25% to 0.75% and mortgage lenders hike their rates accordingly.

Research by financial markets insurance specialist MarketGuard reveals that 2.7 million mortgage payers would struggle to pay an extra £100 on their mortgage payments.

For a borrower with a £100,000 mortgage, this represents a rate increase of about 1.75% to 2% – 2.25%.

The poll revealed many mortgage payers are concerned about the effect interest rate rises would have on their finances.

Mortgage payers would struggle with rate rise

MarketGuard says 900,000 UK mortgage holders say they would struggle to pay an extra £50 a month on their monthly mortgage repayments.

 If their mortgage repayments increased by £200, this figure jumps to 4.8 million people – 66% of all mortgage holders.

Many homeowners are at the mercy of interest rate rises over which they have no control because the credit squeeze on mortgages prevents them from refinancing.

The Bank of England is also feeling the strain from rising inflation – the government’s inflation target is 2% while the current rate is running at 3.3% and market experts are forecasting rampant inflation could reach 4.6% later this year.

Low inflation delivers price stability that stimulates growth and employment.

The Bank of England interest rate is one tool that manages inflation. Increasing interest rates would put the brakes on rising prices.

The recent VAT increase to 20% and surges in energy prices will push inflation up further and make calls for increasing interest rates difficult to resist. Prime Minister David Cameron has already indicated the government is dissatisfied with the way the Bank of England is managing price controls.



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