No change in bank rate leads to heightened expectations of more of the same post election

News - Banking

Written by Ray Clancy

Friday, 09 April 2010 08:15

The decision by the Bank of England’s Monetary Committee to keep the base rate on hold at a record low of 0.5% has come as no surprise and experts now expect rates to stay low for some time.

It is good news for the property market, a continued blow for savers but is regarded as keeping the economy steady at a time of political uncertainty as the UK heads for a general election that could end up with a hung parliament.

‘Although some countries around the world continue to recover from the recession, such as Australia who increased their base rate again this week, the UK economy simply isn’t ready. Add a General Election into the mix and it is extremely unlikely that rates would be changed so close to polling day. Neither the economy, nor the country, could take it,’ said Simon Gammon, head of Knight Frank Finance.

‘Rates are unlikely to change for the foreseeable future and the economic uncertainty brought about by a hung parliament, which many are starting to believe could be a possible outcome of the election, could push rate hikes even further into the distance,’ he explained.

‘If you are thinking about taking a new mortgage or renewing your existing arrangements at the current time it could pay to keep your options flexible. While fixed rates are not expected to change anytime soon, those on flexible tracker rate mortgages will continue to enjoy the savings right now, and be able to fix when they feel the time is right,’ he added.

With the May bank rate decision delayed for several days because of the general election, Ray Boulger of independent mortgage adviser John Charcol believes that the MPC will clearly want to see more information quickly from the new government on its fiscal plans as monetary policy is clearly influenced by fiscal policy.

A hung parliament could make things tricky. ‘This would significantly increase the risk of the UK losing its AAA credit rating. Despite the credit rating agencies demonstrating their incompetence in the run up to the credit crunch, what they say still has a surprisingly large amount of influence and so, whatever one’s views of the agencies, what they say can not be ignored,’ he explained.

He also believes that anyone considering a new mortgage before the election should not ignore the political risk, not only because of the impact the result could have on interest rates but, perhaps even more importantly, also because of the impact the result will have on the UK economy.

The decision is bad for savers, according to John Strain, spokesperson for Save Our Savers. ‘It is a thirteenth month of pain for Britain'’ millions of savers. With the Government doing next to nothing to support their prudent and socially valuable behaviour, whilst bending over backwards to maintain the damaging culture of spending and borrowing. The next few weeks will be a crucial time for change, whoever takes the reins after polling day, and we urge savers to join our campaign now for fairer treatment and concrete policy support,’ he said.