Interest Rates

PGM

I believe today is the day they will decide again whether to increase interest rates or stick to 0.5%.

I'm sure theres a lot of us praying for it to stay low and keep mortgage payments low, and an equally large amount wanting it to rise to increase saving interest! (And help control inflation)

I can't see it going up too fast too soon this year.

PGM

Well, it has stayed at 0.5%.

stevef

The MPC sit every Thursday morning to consider the base rate. The difficulty they are hving is that inflation is above the govt target requiring the Chair of the Bank of England to write a letter of explanation to the PM.

Given that the main objective of the MPC is to keep inflation at or below target you would normally expect it to take some action. The usual course of action would be to increase base rates in order to dampen spending and to increase the amount of cash being taken out of the system by savers. And infact one member of the MPC (Andrew Sentence) has consistently voted for increasing rates.

The alternative view is that the economy is still in a very delicate situation, and rather than dampening down, needs stimulating. It is difficult to see how the base rates could get any lower, we do not wish to see nil investment rates (which in real terms are negative) as seen in Japan a number of years ago. So you either do nothing and leave the base rate at 0.5% (as supported by 6 out of 8 of the MPC members), or try to inject more cash into the system eg more quantative easing (supported by one MPC member).

I am being advised that the 0.5% rate is likely to be around until the end of the third quarter in 2011. The resulting unusual money markets of very low investment rates and reasonably robust borrowing rates have left me preparing a very cautious Treasury Management Strategy and explaining to Councillors why I have used all our excess cash to fund capital projects rather than borrow for the projects and invest the cash holdings.