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Bank Of England Maintains Interest Rates

May 14, 2008
The Bank of England announced today that the base rate of interest will remain unchanged.

In its monthly meeting, the Bank of England's monetary policy committee (MPC) has chosen to keep interest rates at five per cent. The announcement means it is the third time the committee has decided to maintain the rate this year and follows cuts of 0.25 percentage points which were actioned in both April and February.

Following on from the MPC's decision, it is possible that consumers find the pressures which their finances are under does not worsen. And during the current period of economic uncertainty, homeowners may find that their monthly mortgage repayments remain the same. In addition, people could discover that their capacity to manage other monetary demands - such as credit and store cards, personal loans and utility bills - is not put under additional strain.

Commenting on today's decision, Henk Potts, equity strategist for Barclays Stockbrokers, said: "The monetary policy committee is caught between a slow growth rock and a high inflation hard place. UK economic growth is clearly moderating; consensus forecasts are for growth of just 1.6 per cent this year compared to the three per cent expansion recorded in 2007. However, outside the housing market and survey data, there is little hard evidence of a marked slowdown in UK aggregate demand."

He also stated that he feels headline inflation is set to "remain high" for the rest of the year, while the consumer price index inflation is also likely to move up from the current rate of 2.4 per cent. He attributed the increase in the latter towards increasing utility prices and continuing devaluation of the pound. However, he stated that the Bank of England is set to carry out further reductions to the base rate of interest, with this likely to stand at 4.25 per cent by the end of 2008.

Director general at the Council of Mortgage Lenders (CML), Michael Cougan claimed that although the MPC was required to strike a balance between slowing economic growth and rising inflationary pressures when making its decision, it is "disappointing" that they had missed a chance to cut the base rate. He also added that although the mortgage and housing markets are likely to face challenges for the rest of the year, most mortgage payers are "coping well".

However, Mr Coogan advised those consumers who are experiencing difficulties in managing their money or are concerned that they may soon develop problems to get in touch with their loan lender or a debt advisory service as soon as possible.

For those that are concerned about their ability to manage their finances as the year progresses now might be a good time to take out a cheap loan. By choosing this type of loan, it is likely that borrowers can supplement their spending effectively and help with making major purchases.

Research carried out by the CML last month indicated that an increasing number of homeowners are looking for mortgage products which follow any changes to the base rate of interest. In February some 35 per cent of consumers were shown to be taking out tracker rate mortgages, a rise from the 14 per cent recorded during the same month in 2007.
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Mark Dawson writes for the the Loan Arrangers where you can compare cheap online loans and apply online for the cheapest secured loans, and direct loans.
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