Interest Rate Update to 16 June 2010

UK Interest Rate: 0.5%

UK Interest Rates Forecast: Majority expect rates to rise within 12 months

Bank Leaves Rates on Hold in June

The Bank of England MPC voted to leave the Bank Rate unchanged, at 0.5%, in June. The Bank Rate has now been at this record low level for sixteen consecutive months – with no clear sign yet of when the bank will increase it.

Bank Survey Finds Rate Rise Expected By Majority

The latest Bank of England/GOP Inflation Attitudes Survey has found that the majority of people – 52% - expect interest rates to rise in the next 12 months. Just 6% of those questioned expected interest rates to fall in the next 12 months.

Another recent survey – by insurance company MarketGuard – found that 7% of those questioned admitted that they would not be able to afford their mortgage repayments if their mortgage rate rose. Many borrowers are stuck on variable rate mortgages because they can't secure a competitive new fixed-rate deal or because moving to a fixed-rate mortgage would result in a substantial rise in their monthly payments – which they simply cannot afford.

Inflation Falls in May – Better Than Expected

The latest inflation figures from the Office of National Statistics show that the CPI measure of inflation fell from 3.7% in April to 3.4% in May, a better result than expected.

Although still substantially above target, this fall supports the Bank of England's argument that the rise in inflation is linked to short-term factors such as fuel costs and January's VAT increase. The Bank's expectation is that inflation will fall back to its target 2% level over the next year. It's not yet clear whether achieving this will require an increase in interest rates or not.