Bank of England leaves interest rates on hold for now

Amidst rising consumer concerns over the possibility of another interest rate hike this month in the UK, the Bank of England has announced that it is going to keep the interest rate on hold for now and take a 'wait and see' stance before making any decision with regards to a fourth interest rate rise since August last year.

The interest rate hike from January 2007 came as something of a surprise for many – although a rise in interest rate had been expected fairly early in the year most did not think it would be quite that early.

Since August 2006 the Bank of England has raised the interest rates three times, taking the rate from four and a half percent in August 2006 to five and a quarter percent in January 2007. This has hit many mortgage payers hard, as they have seen their monthly mortgage repayments soar – a situation that would have worsened had another interest rate rise been enforced this month. The decision to keep the rates on hold for now therefore comes as a relief for homeowners all across the UK.

With inflation hitting an eleven year high of three percent recently, the Bank of England has had to try and keep a reign on inflation through enforcement of these interest rate rises. However, many experts have said that they feel the bank is making the right move by keeping the interest rates on hold for now. One economist stated: "The Bank is right to hold its fire until the smoke clears and the impact of the recent rises becomes clearer. Another rise so soon after the last risks spreading unnecessary alarm amongst business and the consumer."

However, others warn that the relief amongst many businesses and consumers may be short lived, and that the bank may have to look at another increase shortly. Global Insight chief economist Howard Archer stated: "We currently expect 5.5% to be the peak in interest rates, but there is a very real risk that interest rates could go higher still."

Tom Smith
10.02.07

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