The Bank of England is likely to hold Base Rate at its current historic low of 0.5% for the foreseeable future.
UK Business Secretary Vince Cable admitted in a speech to the Lib Dems yesterday that there “would be a problem” if the Bank were to increase the rate.
He went on to point out that most of the decision makers at the Bank did not support a Rate rise.
Andrew Sentance, one of the nine members of the Monetary Policy Committee (MPC), which takes a monthly vote on whether and how to move the rate, is in favour of an increase to keep a lid on consumer prices.
“There’s one member of the MPC who says inflation’s coming back,” Cable said.
“He’s just one. It’s very clear that the inflation we have in the system is largely imported. You don’t deal with imported inflation by shoving up interest rates.”
Speaking at an event hosted by Your Mortgage sister publication Mortgage Solutions last week, Nationwide’s head economist forecast that the Base Rate would not increase until 2012.
Mark Saddleton, head of economic and market analysis at Nationwide, said that, while inflation is likely to be back at 2% in two years time, the Bank of England is more concerned with growth than inflation, meaning it is “entirely conceivable” that the Base Rate will not increase in 2011.
He said that when the Base Rate does rise, it will do so very slowly.
However, Saddleton sounded a note of caution for the future, saying that “…when interest rates rise, a lot of households will have significant difficulties in repaying their mortgages.”
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