Relief for mortgage payers as interest rates held
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Your support makes all the difference.Homeowners were spared higher mortgage costs today after a "knife-edge" decision by the Bank of England kept interest rates at 4 per cent.
Analysts believe the vote was a close call as the Bank's rate-setting committee balanced concerns over soaring house prices and consumer debt levels with the need to keep the economic recovery on track.
Despite the reprieve, experts warned households that a quarter point increase in interest rates was almost certain next month.
The Bank has increased its base rate twice in the last five months, although it has stressed the need for a gradual approach to raising borrowing costs.
Investec economist David Page said: "The MPC has maintained its cautious policy on hiking rates. It still appears uncertain about how the indebted consumer will react to multiple rate rises."
Business leaders welcomed the no-change decision, particularly after figures this week showed a surprise fall in manufacturing output.
David Frost, director general of the British Chambers of Commerce, said: "It is vital to avoid further interest increases until the recovery is more secure."
Today's decision suggests that the Bank of England still thinks that inflationary pressures remain subdued despite the recent economic upturn. Inflation is currently at 1.3 per cent - well below the target of 2 per cent, although the Bank must base its interest rate decisions on a two-year horizon.
The major debate at the MPC's two-day meeting is certain to have centred on the state of the housing market after the Nationwide and the Halifax both reported a further pick-up in prices last month.
At the same time, mortgage lending and consumer credit remains high, and figures from the Bank of England showed that homeowners withdrew a record £16.19 billion in equity from their properties during the final quarter of 2003.
In contrast, the manufacturing sector is still not out of the doldrums with industry experts fearing the impact of a rate rise on sterling.
Steve Radley, chief economist at manufacturers' organisation EEF, said: "Two rises in three months would have poured fuel on the fire of expectations of further rises to come, potentially pushing the pound to damaging levels against the dollar."
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