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Interest rates on hold for June

Thursday, 7 June 2007 12:00 AM

Interest rates are on hold at 5.5 per cent for June, the Bank of England announced today.

Following the decision to raise interest rates last month by 0.25 percentage points, the Bank of England's monetary policy committee (MPC) was widely predicted by lenders and property market experts to keep rates level.

The Royal Institution of Chartered Surveyors (Rics) said the decision was "not unexpected" as inflation was likely to drop in the coming months and it was unclear how much impact the four base rate rises since August 2006 have had.

David Stubbs, Rics senior economist said "further evidence of a slowing housing market" was now clear.

"At least one further rise is still on the cards. Indeed, by not raising interest rates now the Bank risks having to push rates to six per cent by the end of the year."

The MPC votes to raise or lower interest rates to attempt to keep inflation in line with the government's two per cent target.

Barry Naisbitt, chief economist at Abbey agreed with Rics' views that another rise was possible, but said it was unclear which way inflation would go over the coming months.

He said: "While financial markets are clearly expecting a further rate rise, particularly after the analysis in the Bank of England's inflation report last month, it was not really expected in June.

"The members of the MPC will likely have wanted to review how the economy has reacted to the May rate rise and to take into account the latest news on inflationary pressures before acting again."

Michael Coogan, director general of the Council of Mortgage Lenders (CML) advised borrowers not to be complacent about further rate rises.

"While today's decision not to raise rates is welcome, there is no cause for complacency. More than two million borrowers over the next year and a half will reach the end of fixed-rate deals, and will face the prospect of higher mortgage payments.

"For most people, the scale of the increase will be manageable. But it makes sense for borrowers whose fixed-rates will end soon to start planning ahead now, and to recognise that their monthly costs will be higher in the future.

"Anyone who thinks they may face financial difficulties should talk to their lender at an early stage to see what steps can be taken to improve their situation."

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