Mortgage News

Reasons behind the change, can we expect more to come?

We have all had our lives affected in one way or another by the recent increase in base rates, but do we all know why this has happened?

At the start of this year, the Monetary Policy Committee (MPC) indicated that to keep inflation at its target level, they would need to increase the Bank of England Base Rate to 5.5%. This was brought into effect at the beginning of this month.

The intention of the MPC is to bring the levels of inflation back down to the target level of 2% as soon as possible. In March, we had an unexpected level of 3.1%, this fell in April to 2.8% but does this mean that things are going to come back down at the end of the summer? Well, it is possible but is unlikely; the chances are that rates are not going to come down for a while at least. The problem lies with the banks longer term outlook, with regards particularly to the end of next year, there is a long term outlook issued by the bank that shows inflation down by the middle of 2008, but with an upward trend. It is this assumption that is causing the possibility of another increase to 5.75% or even 6%.

Although this looks like the onset of doom and gloom, it might be that the impact of this base rate change has been slower to take effect and is yet to hit the market. As with all things relating to rates, the crystal ball is very cloudy, looking overcast at the moment, but the horizon could yet clear.