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Inflation Spike Preventing Interest Drop

Sep 1, 2008
The Bank of England will be more able to reduce interest rates once the "spike" of inflation has passed, it has been claimed. A spokesperson for the Council of Mortgage Lenders predicted that the Bank's monetary policy committee will not yet be able to reduce interest rates, as inflation is still a cause for concern.

However, once this spike of inflation has been passed, there is the opportunity for the base rate of interest to be reduced, the spokesperson said. Currently, the base rate set by the Bank of England stands at five per cent - and has remained at this level since April, when it fell from 5.25 per cent.

The monetary policy committee of the Bank of England meets to set the base rate once a month, with the decision being announced on the Thursday of the first full week of the month. The outcome of the meeting has an effect on everyone across the country and it may affect the rate of interest paid on forms of borrowing, such as a personal loan or secured loan.

A spokesperson for the Council of Mortgage Lenders said: "Until it is clearer that we are over the spike in inflation we don't expect the Bank to be able to move to ease interest rates. When it does become clearer that we are over the spike of inflation it will have more credibility if it does seek to reduce interest rates in response to the prospect of the economy slowing down sharply."

He added that such a move would be more effective in delivering the intended outcome than a drop in the base rate of interest at the current time. It would also help to boost confidence in the Bank of England and its decisions, he suggested.

Figures published by the Office of National Statistics earlier this month have revealed that the consumer price index, which rose to 4.4 per cent in July, has been affected by 13.7 per cent rise in food prices over the course of the year. This was predominantly because of an increase in the cost of meat, the research indicated. Bread, cereals and potatoes have also seen increases in prices over the course of the past year.

In related news, a study conducted by uSwitch earlier this year found that taxes imposed on drivers in the UK are partly to blame for consumers paying more at the pump than their European peers. Indeed the survey found that Britons pay an average of 119p for every litre of fuel purchased on the forecourt, which is an average of 20 per cent more than is paid at pumps across Europe. Indeed the research found the cheapest fuels were located in Spain, where a litre of petrol costs an average of 23p less than it does here in the UK. And opting for a loan to help cover the cost of a more fuel efficient vehicle may be one option open to consumers who are finding that trips to the petrol station are coming all too often.
About the Author
Abbi Rouse writes for All About Loans where visitors can apply online for tenant loans. We also specialise in homeowner loans, and self certification loans for the self employed.
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