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<< News archive December 2010

17th December 2010

Uncertainty appears to be the watchword among policymakers at the Bank of England (BoE). Recent events have provided few hints on the possible direction of UK interest rates and the timing of any potential movements, and the Monetary Policy Committee (MPC) remains divided on future strategy.

 

Minutes of their November meeting showed that, although most Committee members wanted rates frozen at 0.5%, one member voted for an increase of 0.25 percentage points, while another called for an expansion of the currently dormant quantitative easing programme.

 

The Consumer Price Index remains stubbornly high, running well ahead of the BoE’s rolling government-set target of 2%. However, the MPC is not currently keen to try and cool inflation by raising interest rates.

 

Although the base rate remains at its lowest level in more than 300 years, policymakers are reluctant to stage an increase for fear of derailing the UK’s fragile recovery. This is likely to experience an additional curb in the short term thanks to the cuts in public spending.

 

For the short term then at least, our environment of exceptionally low interest rates appears here to stay. Such a strategy is good news for borrowers; however, it will prolong the headache for savers, particularly those who are looking for a low-risk home for their money.

 

Those focusing on deposit accounts are already getting scant little compensation in terms of the income they are earning, whilst in the meantime, inflation continues to eat away at its real value. 

Contact Details: Richard Eastwood

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