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Mortgage rates on hold

Monday, 9 May 2005 12:00 AM

Mortgages rates will remain on hold in May after the Bank of England decided to maintain base rate at its current level.

The announcement, delayed by four days to avoid a clash with the general election, was in line with economists' expectations following weak retail sales and manufacturing data.

Interest rates have now been at their current level for nine months; and recent data on manufacturing, house prices and retail sales led analysts to believe a further rise was unnecessary at this stage.

Some analysts now believe the Bank's Monetary Policy Committee will not raise interest rates, and might even begin to think about lowering them in the coming months.

Global Insight's chief UK economist Howard Archer said: "A month ago, we had believed that a 0.25 per cent interest rate hike was highly possible at the May MPC meeting. This belief was temporarily boosted by the news that consumer price inflation had spiked up to 1.9 per cent in March."

"Events since then have caused us to change our view. Not only do we now expect the MPC to leave interest rates unchanged on Monday, but we are now seriously wavering in our long-held belief that the eventual next move in interest rates will be up," he added.

But mortgage holders should not be expecting a cut in their interest rates immediately.

"We believe that the MPC is likely to stay on the sidelines for at least a couple more months while it tries to ascertain whether the economy is just going through a temporary soft patch, or whether it is the start of a sustained slowdown in activity," Mr Archer explained.

Lloyds TSB chief economist Trevor Williams said consumers still needed to factor in the possibility of further rate rises, but added that this was unlikely to occur until after the summer - if at all.

"With inflation close to target, at 1.9 per cent in March, and possibly going above target in the coming months, the MPC may well use the summer months to wait and see whether consumer spending bounces back before considering a further rate rise," he said.

"What's more, housing market activity has stabilised and looks like it will show more signs of recovery as we head towards the summer. If the MPC were to have raised rates today it could simply have accelerated a slowdown in the market."

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