Interest rates on hold but increase in summer is likely

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by Kay Murchie

The Bank of England kept the interest rate at 5.5% yesterday but experts have said it is likely that there could still be a rate increase in July with inflationary pressures still threatening due to high food and oil costs. However, if rates remain the same next month, there could still be an increase in August when the Bank of England sees more detailed inflation data.

After a 12 month period of rising house prices, 4 separate 0.25% rate increases and a rise in household bills, this has been a difficult time for homeowners and homebuyers. The news of the interest rate remaining at 5.5% was sure to be a relief among many homeowners.

A spokesperson for mortgage broker, John Charcol, commented that many economists are appealing for an increase in July but if another increase is needed, it would make more sense for the Monetary Policy Committee (MPC) to wait until August for the quarterly inflation report before making that verdict. With the total previous rise of 1% looking like it is helping, MPC will want more time to see if this is indeed the case.

A senior economist with the Royal Institution of Chartered Surveyors commented that the property market slowdown is underway. Mortgage rates are on the increase, first time buyers are experiencing difficulty getting onto the property ladder as they can’t afford the substantial mortgages. However, a shortage of homes for sale and good economic conditions will continue to support prices and the crash that many experts continue to envisage could be avoided. If interest rates do increase before the end of 2007, then a difficult 2008 could be likely.