UK Interest Rate: 5.75%

UK Interest Rates Forecast: Reducing likelihood of rates hitting 6% later this year

Bank of England Holds Rates At 5.75%

Following Thursday's meeting of the Monetary Policy Committee, the Bank of England announced that interest rates would remain unchanged for September.

While the decision was unsurprising, the fact that an explanatory statement accompanied it was a surprise. The Bank apparently felt the need to provide additional reassurance that it would consider market conditions when making future interest rate decisions:

"It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households."

In the ten years since Gordon Brown gave independence to the Bank, it is only the third time that the MPC have made a statement following a 'no-change' decision. Both previous times, it has been a prelude to a rate cut in the following month.

Analysts say that this is far from a foregone conclusion in this case, noting that the Bank's statement did not explicitly hint at the direction of future rate movements as it has done in the past.

Several economists noted that the rise in inter-bank lending rates had made further rises to interest rates redundant. Andrew McLaughlin, RBS chief economist noted that "Borrowing costs have risen without any change in the Bank rate. This makes further Bank rate increases much less likely…"

Rate Rises Not Being Passed Through To Borrowers

Despite widespread concern over the effect of rising interest rates on mortgage holders, it appears that many mainstream mortgage lenders have not actually passed the whole of these increases on to their mortgage customers.

In the Bank of England's mortgage rate report for July, the Bank noted that although the base rate had risen by 1.25% since July 2006, fixed mortgage rates had risen on average by only 0.59%.

While this could be good news for borrowers, it does not take into account the general trend of rising mortgage fees, which many lenders appear to have been using to subsidise attractive headline interest rates for their fixed rate mortgages.