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July Interest Rates

The July meeting of the Monetary Policy Committee (MPC) saw rates once again held without change – the eleventh month in succession that they have remained at 4.5%, the most stable run since the 1950s.

This month’s meeting was somewhat unique, as it took place with just seven members as there are still two positions on the committee that have yet to be filled following the death of one member and the resignation of another, as we reported previously. With its depleted compliment of members, the MPC took the decision not to rise the base rate despite the feeling among many analysts that a rise is needed to keep inflation running on target. A cut was certainly not on the cards, despite the fact that the housing market has taken something of a hit over the past month or so.

Inflation in the Consumer Price Index (CPI) was running above the two-percent target during May of this year, and there was speculation that it would remain at that 2.2% rate unless action was taken to bring it down – that action being pushing interest rates higher. As it is, things seemed to have calmed down a bit in terms of inflation, and the Bank now seems happy to ‘wait and see’ how things pan out for a while before taking action, something that the Bank’s governor Mervyn King has stated that he is comfortable with.

The base rate on interest has remained remarkably stable for a few years now, with the last two changes coming in August 2004 and August 2005 – so will the MPC keep this trend and raise the rate next month? Well there is no real way of knowing that until they meet and make their decision, but the best guesses of analysts are that we will pass the full-year mark with unchanged rates, with a rise following before years end. As always we will keep you posted on these developments, which have widespread effects on the rates of loans and mortgages.