Interest Rate Update to 15 September 2010

UK Interest Rate: 0.5%

UK Interest Rates Forecast: No change this year

Bank Leaves Rate Unchanged at 0.5%

The Bank of England Monetary Policy Committee voted last week to leave the base rate unchanged at 0.5% for the 18th consecutive month.

The decision was widely expected and most economists consider that the MPC is now unlikely to increase the base rate until next year. However, this viewpoint has had a slight shadow of doubt cast on it by the news this week that the CPI measure of inflation remained unchanged at 3.1% in August – it had been expected to fall slightly to below 3%.

The MPC's job is to keep inflation at 2% and to avoid allowing it to fall below 1% or rise above 3%. If either of these limits is breached, the MPC has to send a letter to the Chancellor explaining what has happened.

Mortgage Market Remains Weak

Meanwhile, in the mortgage market, activity remained weak in the traditionally busy month of July. New figures from the Council of Mortgage Lenders show that 56,000 loans for house purchase were approved in July – an increase from 52,000 in June but relatively weak compared to historic figures.

Figures for first-time buyers were similarly lacklustre. 19,400 mortgages were advanced to first-time buyers in July, with an average deposit of 24%. This is a small decrease in new mortgage numbers from June, when 19,700 new mortgages were approved. It is also lower than in July 2009, when 20,100 mortgages were approved for first-time buyers.

First-time buyers' share of the market fell to 34% in July – down from 38% in June and the lowest level since the credit crunch began in 2007.