Change is on the cards for the base rate in 2012
The Bank of England’s monetary policy committee’s decision to hold the rate at 0.5 per cent has is under increasing scrutiny from the financial services industry.
Commentators were convinced the worsening economic environment and a need to improve liquidity would see the rates cut to 0.25 per cent, but the MPC announced no change again today.
Ben Thompson, managing director for Legal & General Mortgage Club said: “No change to quantitative easing or the rate itself this month was no surprise but there is a good chance the Bank will have to act again later in the year if this pessimism is well placed and we see no new positive signs of growth. This may come in the form of a cut to the base rate.”
Brian Murphy, head of lending at leading broker Mortgage Advice Bureau, said: “A rate cut was always highly unlikely, coming just one month after the increase in QE to £375bn and the launch of the Funding for Lending Scheme on 1 August. The MPC needs to see what impact these measures have before taking any major action.
“Slashing the base rate would have benefits, particularly for borrowers who have mortgages linked to it, but it would also hurt those lenders who have been supporting the market with competitive products.
“But with GDP figures for the second quarter showing the economy shrank by -0.7 per cent and the news of shock slump in the manufacturing sector last month, cutting the base rate to 0.25 per cent or lower remains a definite option.”
However, it was not all doom and gloom. Mr Thompson said: “On the positive side, since Mervyn King addressed his audience at Mansion House and unveiled details of the Funding for Lending Scheme, we have seen headline mortgage rates plummet to record lows.
“Some lenders are simply falling over themselves to court the best, so-called lowest risk borrowers, so much so that we have seen the cost of two year fixed rates fall by 0.7 per cent over this short timeframe, and five year fixed rates by 0.9 per cent.
Although this won’t cure the ills of our wider economy, he said it appeared as though the FLS is having positive direct and indirect benefits, and this will be felt in some borrowers’ pockets later in the year and create new additional spending power.