MPC Decision May 2009

The Bank of England has announced that interest rates will be held at 0.5%. Moneysupermarket.com editor Clare Francis looks at the reasons for the decision and how it will affect savers and borrowers..

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It was no surprise that the Bank of England’s Monetary Policy Committee voted to keep interest rates on hold at 0.5% this month. In fact barring anything totally unexpected, most economists expect the Bank rate to be left unchanged for the rest of the year, this will bring some welcome relief to borrowers and savers.

Interest rates were cut every month between October and March which wreaked havoc on mortgage and savings rates because they where just being changed left, right and centre. However, if we are now entering a period of more stability things should settle down, making it easier for people to choose which savings account or mortgage to opt for.

And even though interest rates have remained unchanged again this month, competition in the mortgage market seems to be picking up again, with a number of lenders having improved their offerings recently. This is good news because the mortgage shortage has been one of the factors blamed for the downturn in the housing market.

And there are also signs that consumers are less gloomy about the future. Nationwide building society’s latest Consumer Confidence Index rose eight points in April, it’s largest monthly rise for nearly two years.

However, while people may be beginning to see the light at the end of the tunnel we are not there yet and it is still too early to call an end to the economic problems. House prices fell by an average of 1.7% in April, according to Halifax, and they are 17.7% lower than they were this time last year. That said if consumer confidence continues to pick up and mortgages become easier to obtain, we could be past the worst. Some forecasters are expecting the market will bottom out later on this year or early next year, and a slow recovery will then begin.

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