Interest Rates Again Held at 0.5%
This latest interest rate decision keeps the record low rate at 0.5% for the 24th month in a row.
In January two members of the MPC voted to increase interest rates. By February’s meeting three members of the Monetary Policy Committee found the case for an interest rate rise "compelling".
Inflationary pressures have been key in influencing a call to raise rates with an increase in the UK Consumer Prices Index (CPI) the annual inflation rate rose to 4% in January, up from 3.7% in December, probably due to the rise in the VAT rate from 17.5% to 20%. Increasing oil prices, due to volatility in the Middle East, haven’t helped inflationary figures either.
The Retail Price Index (RPI), which includes mortgage repayment rates, has also been on the rise up from 4.8% to 5.1%
Despite inflationary pressure, there has been a wide concensus that, with Mervyn King predicting inflation rates to stay high for the short term only, that an interest rate increase could be possible in May of this year.
The British Chambers of Commerce have already reacted to such speculation by saying that an increase in the base interest rate in May would be risky – putting pressure on individuals and small businesses far too early..