Interest Rate Update 11August 2010

UK Interest Rate: 0.5%

UK Interest Rates Forecast: The MPC is keeping its options open

MPC Leaves Bank Rate Unchanged At 0.5%

The Bank of England's Monetary Policy Committee voted to leave the base rate unchanged at 0.5% in August, as was widely expected. The base rate has now been at this level for 18 consecutive months.

However, the Bank is expected to increase inflation forecasts in its latest inflation report, due out on the 11th August. The main reason for this is the expected increase in inflation that will result from VAT rising to 20% in January 2011.

Recent MPC meeting minutes suggest that opinion within the MPC has diverged in recent months, which could make it harder to reach agreement on any planned changes. However, economists still expect to see rates start to increase at some point in 2011.

Mortgage Rates Remain Low, Deposits Remain High

Despite concerns over whether the UK's banks and building societies are lending enough, those borrowers who do meet the current lending criteria are enjoying some very competitive deals.

Fixed-rate mortgages are currently available with interest rates below 4%. One of the best tracker deals on offer at present has a rate of just 1.49% above the Bank of England rate – meaning that the current rate is just 1.99%.

The downside to this is, of course, that deposit requirements remain fairly high.

Nationwide Records Falling Consumer Confidence

The latest Nationwide Consumer Confidence Survey has found that many households throughout the UK are feeling less secure about their financial and employment prospects than earlier this year.

In July, just 25% of households felt that now was a good time for a major purchase, such as a house or car. This is a fall from 29% in June and 30% in May.