Base rate ‘may stay low all year’

It could be the end of 2011 before the Bank of England raises the base rate, one expert has argued.

Yesterday (March 10th) saw the Monetary Policy …

It could be the end of 2011 before the Bank of England raises the base rate, one expert has argued.

Yesterday (March 10th) saw the Monetary Policy Committee (MPC) vote to hold the cost of borrowing at 0.5 per cent, where it has now been for two years and six days. While experts agree yesterday’s decision was expected and predictable, their views on when there should be a change vary.

According to chief economist at Nationwide Robert Gardner, the MPC has been stuck “on the horns of a dilemma”, wanting to raise the rate because of higher inflation but constrained from doing so by fears about the strength of the economic recovery.

He stated: “We still think growth concerns will keep rates on hold until the back end of 2011.”

Such a situation could be good news for those facing the risk of repossession, but if inflation stays higher as a result, many may find they need debt management help as falling incomes in real terms continue to bear down on living standards.

If prices go on rising faster than wages, some consumers may find that as hard to cope with, just as many homeowners could struggle with increased mortgage payments.

And those who are threatened by either eventuality may need to seek help as the situation is uncertain. While Mr Gardener expects a long wait for a change in monetary policy, chief economic advisor to the Confederation of British Industry Ian McCafferty disagrees.

Mr McCafferty also expressed the view that the decision yesterday was only to be expected, but argued there should be a change in the second quarter, suggesting the biggest threat to the economic recovery is the instability of high inflation.

By Amy White

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