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Loan rate frozen

9 June 2005

The Bank of England has today said that interest rates will remain on hold at 4.75 per cent for June.

The move was well trailed, with all 85 economists polled by Reuters and Bloomberg correctly predicting that the bank's interest rate-setting monetary policy committee (MPC) would vote to freeze interest rates for the tenth month in a row.

The Bank of England raises or lowers the underlying rate of borrowing in the UK in an attempt to keep inflation (as measured by the Consumer Price Index) as close to two per cent as possible. CPI inflation currently stands at 1.9 per cent.

However, with a worsening outlook for economic growth and consumer confidence dipping, economists are predicting the current rates freeze is set to end soon, and that the cost of borrowing could begin to fall from its three and a half year high.

"The bet in the market is that rates will be heading down by the year-end and could stand at 4.25 per cent by March," said Simon Rubinsohn, chief economist at investment management firm Gerrard.

The bank has lowered interest rates just once in the last 28 months, but with consumer spending retrenching and the property market lodged firmly in the doldrums, analysts believe the UK economy could be in need of a boost.

Lower interest rates would see millions of homeowners save money on their mortgages, as well as making credit in general cheaper. This could be enough to stimulate the property market and reinvigorate consumer spending.