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January 13, 2011

Base rate on hold at 0.5%

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by Gill Montia

Base rate on hold at 0.5%

The Bank of England has announced that the base rate will remain on hold at 0.5% in January.

The Bank’s rate-setting Monetary Policy Committee has resisted any need to raise interest rates, despite the Consumer Prices Index measure of inflation increasing to 3.3% in November.

The UK’s official level of inflation has now been running above the Bank’s 2% target for several months, and is likely to increase further given today’s rising commodity prices and January’s VAT increase, to 20%.

The UK’s many homeowners who have reverted to lenders’ relatively attractive standard variable rates at the end of fixed rate deals, can breathe a sigh of relief for another month.

However, mortgage borrowers have recently been challenged to shed their low interest rate mentality before it’s too late.

Research from unbiased.co.uk suggests that homeowners are currently only prepared to enter a fixed-rate deal if the interest rate is around 3.3%.

The professional advice website therefore suggests the emergence of a “rate-spoilt” generation as back in January 2009, a rate of 4% would have appeared attractive, given that fixed-rate deals peaked at around 7.8% at the end of 2007.


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