Best Debt Solution:No change given
Tuesday, 7. July 2009
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For the third month in a row the Bank of England has announced there are to be no interest rate changes to stimulate the economy. The cost of borrowing remains unchanged at 0.5 per cent.
Meanwhile, the European Central Bank also decided to keep interest rates unchanged at one per cent.
The current economic instability means that housing market activity in the UK remains low and consumer savings have dropped to record levels, with savers still receiving low returns on what money they put aside.
Despite the announcement of no fresh measures to boost the economy, the Bank of England last month said that, as part of its quantitative easing policy, it would be pumping an extra £50bn into the UK economy.
There are tentative signs that an economic recovery could be on its way and the banking sector is trying to gauge how the economy is faring. However in its latest Inflation Report, the Bank of England warns that there is still uncertainty over the economic outlook.
According to a recent survey by the Halifax, UK house prices rose by 2.6 per cent in May. The record low interest rates set by the Bank of England have eased mortgage affordability for many.
According to the Halifax index, the proportion of disposable income spent on mortgage repayments by first time borrowers has fallen from its high of 48 per cent, in late 2007, to 31 per cent in the first three months of 2009. This has helped ease pressures on the buy-to-let market, with many letting agencies facing bankruptcy in the early days of the recession.
However, recent interest rate falls have also led to a drop in the level of interest paid out on savings. At the end of January 2008, the average interest rate for savings was 2.77 per cent, now it is only 0.16 per cent.
Despite current optimism in some economic quarters that financial recovery could begin soon, many economists expect interest rates to remain low for some time.
Economic adviser to financial consultants Deloitte, Roger Bootle has said: “I think that monetary policy will remain exceptionally loose for a prolonged period.”