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MPC split 6-2 over base rate hold decision

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  • 03/08/2017
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MPC split 6-2 over base rate hold decision
The Bank of England’s Monetary Policy Committee (MPC) has voted to hold the base rate at 0.25%.

The MPC was split six-two over the decision as it seeks to meet its 2% inflation target. Ian McCafferty and Michael Saunders voted for the rise.

The split follows a division in June, when three committee members voted to raise the rate. One of the three has since left the committee.

The committee said “six members thought that the current policy stance remained appropriate to balance the demands of the MPC’s remit. Two members considered it appropriate to increase bank rate by 25 basis points.”

All members have agreed that any increases in the bank rate will be gradual and limited.

“The Committee will continue to monitor closely the incoming evidence, and stands ready to respond to changes in the economic outlook as they unfold to ensure a sustainable return of inflation to the 2% target,” it said.

Analysts and experts have speculated that a rise of 25 basis points may take place in Autumn or early 2018. A surprise drop in inflation in June may have delayed a rise.

The MPC voted to maintain its levels of government and corporate bond purchases. However, it has signalled the end of the Term Funding Scheme, designed to make cheap money available to banks.

David Hollingworth from L&C Mortgages said the scheme has helped boost competition in the mortgage market and “underlines that rates won’t necessarily remain at the current lows forever”.

“Mortgage borrowers may feel that nothing has changed and so there is little need to do anything. However, those on variable rates remain vulnerable to a rate rise in future and those on standard variable rates continue to pay well over the odds.

“They should take advantage of the great rates on offer and potentially lock their rate down at the same time, to prepare for and buffer against any rate changes in future.”

Jeremy Duncombe, director of the Legal & General Mortgage Club, said in the year since rates were taken to an historic low, the mortgage market has remained buoyant, quickly adapting to the challenges of Brexit and the UK general election result.

“However, these historic lows won’t last forever, particularly as inflation starts to creep upwards. A base rate rise this year, whilst not a certainty, is possible.”

Duncombe added that “time is of the essence” to secure a new deal, before interest rates “inevitably rise again”.

Ishaan Malhi, CEO and founder of online mortgage broker Trussle, said there are positive and negative implications for households.

“For existing homeowners, sustained low interest rates are good news because they keep mortgage repayments level.

“For those saving for a deposit, sustained low interest rates are bad news since their savings will continue to grow slowly. The glimmer of hope, particularly for first time buyers, is that housing prices have begun to slow making some areas that were previously unaffordable more accessible.”

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