Interest Rate Update 15/12/10

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Rates to remain low until at least spring 2011

Bank of England Keeps Base Rate At 0.5%

The Bank of England's Monetary Policy Committee voted to keep the base rate at 0.5% for the twentieth consecutive month last week.

The decision, which was expected, means that homeowners with tracker mortgages will not see any increase in their monthly mortgage payments.

In its forecast for 2011, the Council of Mortgage Lenders has predicted that it is "quite possible" that the base rate will remain unchanged at 0.5% throughout 2011.

Inflation Up But Interest Rates Unlikely To Follow (Yet…)

The latest inflation figures show that inflation has risen to 3.3% - considerably above its 2% target. The main factors causing the rise appear to be tax increases, transport costs and certain raw materials – such as wheat and cotton.

However, the Bank of England appears unlikely to address the rise in inflation by increasing the base rate, with Deputy Governor Charlie Bean saying recently that increasing rates too soon "would simply have put a brake on the recovery unnecessarily."

Little Change Likely In 2011 Mortgage Market

The mortgage market in 2011 is likely to be very similar to 2010's market, according to the Council of Mortgage Lender's forecast for 2011. The CML say that "the availability of mortgages for first-time buyers will remain limited" and that lenders are only likely to have a "modest appetite" for lending mortgages with small deposit requirements.

The CML expects to see lenders "continue to channel funding towards lower-risk customers, including those with larger deposits."