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Interest rate rises likely?

Bank of England policymakers voted 6 to 3 in favour of keeping the base rate of interest on hold at a record low of 0.5% this month, according to minutes of April's Monetary Policy Committee (MPC) meeting.

The minutes suggest an interest rate rise is less likely in May.  It means there was no change to the voting from March. The Bank held the rate at its 0.5% for the 25th month in a row - despite inflation running at more than twice its 2% target.

Since that meeting, it has emerged that the Consumer Prices Index (CPI) measure of inflation fell unexpectedly in March by 0.4% to hit 4%.

Many economists and analysts think a 0.25% rise in rates could come as soon as May or June but the latest inflation data makes that less likely.

In the minutes, the Bank says it is hard to know how to interpret that drop in CPI inflation but there remains a significant risk it will reach 5%.

In February, March and April, five MPC members voted to keep rates unchanged while hawk Andrew Sentance voted for a 0.5% rate increase.

Martin Weale and Spencer Dale voted for a 0.25% rate increase.

Adam Posen, as well as voting to keep rates on hold, continued to call for an additional £50bn of quantitative easing.

Policymakers will be keeping an eye out for tomorrow's retail sales figures, which are expected to show a slump in consumer confidence as government austerity measures kick in.

Simon Hughes, MD of Conran Estates and Conran Financial says "If there is stronger, wider evidence that the UK's economic recovery remains stagnant, it seems clear there will be no interest rate increase for tracker mortgage customers to worry for a few months although data changes quickly. Anyone who is on a tracker rate mortgage and has a nervous disposition should speak to an Independent Mortgage Adviser to review their options.

Published in: April Newsletter


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