Bank of England holds rates at 5.25%

Thursday, 8 February 2007 12:00 AM

The Bank of England held interest rates at 5.25 per cent today following last month's unexpected rise of 0.25 percentage points.

However, experts are not expecting rates to stay at this level in the long term - borrowers are still expected to be hit by a further 0.25 percentage point increase in the first half of the year.

This is due to inflation, which the Bank of England tries to control by lowering and raising interest rates, hitting record highs in December.

"Unfortunately, we may not have seen the last of the interest rate increases," commented Trevor Williams, Lloyds TSB economist.

"Although the last increase may only have been a month ago, all the economic signs are that another one could be on the cards, if not this month then soon."

The National Association of Estate Agents chief executive, Peter Bolton King, welcomed this month's decision, saying he hoped it was the "start of a period of stability regarding rates, which will be significant in maintaining a stable housing market".

The Royal Institution of Chartered Surveyors (Rics) also welcomed the decision to hold rates, saying household confidence had started to moderate due to higher borrowing costs eating into people's finances, which has led to an easing of the demand for homes.

Milan Khatri, Rics chief economist, said: "Despite the relatively strong rise in house prices reported by Halifax for January, the overall trend is towards a much needed moderation in the market which we expect to be sustained as mortgage costs become even more expensive later in the year."

David Bexon, of property website SmartNewHomes.com, said the Bank of England's decision would help reinstate confidence in the housing market.

"A further rise at this time would have left many vulnerable groups struggling with repayments and could have caused wide spread stagnation across the housing market, with many homeowners either afraid to, or unable to move."

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