Interest rates stay at 5.75%

Thursday, 2 August 2007 12:00 AM

Interest rates stayed at 5.75 per cent today after the Bank of England voted to keep the cost of borrowing on hold.

Last month base rate went from 5.5 to 5.75 per cent, the fifth rise since August 2006 when interest rates were at 4.5 per cent.

The Bank of England's Monetary Policy Committee (MPC) sets interest rates to try and keep inflation in line with the government's target of two per cent.

Inflation has been above two per cent since May 2006, reaching 3.1 per cent in March, but is now back down to 2.4 per cent.

The decision to hold rates this month was widely predicted by economists and housing market experts, though opinions differ on whether another base rate rise will be taking place soon.

"This will provide some welcome respite for homeowners, many of whom are already facing significant increases in their mortgage costs over the coming months," commented Simon Rubinsohn, chief economist for the Royal Institution of Chartered Surveyors (Rics).

He added: "Our suspicion is that the Bank will want to hold fire on further policy tightening until there is more convincing evidence that the housing market is able to shrug off previous interest rate hikes."

Ray Boulger of John Charcol was similarly optimistic about any future rate rises.

He said: "A simple hold would not normally bring sighs of content around the country, but today's decision may well signify that rates have reached their peak and that the next movement in bank rate will be downward, albeit not until next year."

By contrast David Bexon of SmartNewHomes.com said the reprieve on borrowing rates "may be short lived" as many in the industry were predicting a rise to six per cent in the autumn.

"Today's decision to hold interest rates at 5.75 per cent will come as a relief for the UK's homeowners following last month's rise, which proved a major blow for those already struggling with increased mortgage repayments," Mr Bexon said.

"The market now needs to see a period of stabilisation rather than another increase and I would urge the MPC to think carefully, especially in light of the recent devastation caused by flooding and the introduction of Hips, which has caused uncertainty across the market, before making next month's decision."

Mr Bexon's call for caution going forward were echoed by Robert Bryant-Pearson, chief executive of Allied Surveyors' .

"The recent flooding has caused havoc across much of the UK and the impact on house prices and insurance premiums is likely to be felt by a large number of home owners for years to come," Mr Bryant-Pearson explained.

"The market has had a lot to face over recent months: severe weather conditions, rising interest rates, the phased introduction of Hips and slowing house price growth.

"The MPC now needs to rebuild buyer confidence by holding rates or indeed reducing them by the end of 2007."

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