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10th Jul 2009
The Bank of England has held base rate at 0.5%
The Bank of England has held base rate at 0.5% for the fourth month in a row, while continuing with its £125bn programme of quantitative easing.
Purchases of £112bn have been made under this facility since its use for monetary policy purposes was first announced after the Monetary Policy Committee’s meeting in March.
The committee predicts that the programme will take another month to complete.
It will review the scale of the programme again at its August meeting, alongside its latest inflation projections.
The base rate hold was widely tipped by commentators, who continue to focus on the success of the Bank’s asset purchase programme to boost the money supply.
Expectations that the MPC would ask chancellor Alistair Darling to extend the quantitative easing programme beyong the agreed £125bn were resumed for the second month.
But away from the focus on quantitative easing the low base rate is presenting persistent problems with reviving lending, as returns on money held by lenders is not earning as much as it did.
Linda Will, sales and marketing director at In The Loop Mortgages, says: “There are fundamental problems associated with the low base rate environment which are not being talked about because all of sudden it isn’t sexy to talk about.”
Ben Thompson, director of mortgages at Legal & General, says: "Throughout 2010 the challenge for the MPC will shift towards combating inflation whilst not going so far as to choke off any economic recovery.
"Add into the mix the inevitable tax increases that will be required and the knock-on effect that will have on spending patterns and you start to get an idea of the enormity of the task.
"It will become a completely different challenge to the one they have been facing for the past year or so.
"Whilst many are predicting stability in the base rate for some time to come, recent experience has shown that a week is a long time in politics and even longer in the mortgage industry.
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