Interest rates to remain unchanged

Published: Thursday 5th February 2015 by The News Editor

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Interest rates will remain at their historic low of 0.5% today as the recent slide in inflation continues to benefit borrowers.

With inflation at just 0.5% in December and set to fall further, Bank of England policymakers will have room to keep rates on hold when their latest meeting concludes on Thursday.

Most City economists think that rates will be untouched for the rest of the year, having been at their current level of 0.5% since March 2009.

The prospect of rates remaining on hold appears to have ended a mini-downturn in housing market activity over the course of last year.

Recent figures showed mortgage approvals rose from 58,956 to 60,275 in December – the first rise in six months.

Samuel Tombs, an economist at Capital Economics, said: “This renewed pick-up in demand has probably partly reflected the receding possibility of an imminent rise in official interest rates.

“Not only is this likely to have made borrowers more willing to take out variable-rate mortgages, but it has also led to a sharp fall in interest rates for new fixed-rate mortgages.”

At the Bank’s most recent meeting, two members of the Monetary Policy Committee abandoned their arguments for lifting the Bank rate by 0.25% after voting five times to do so since last summer.

The Bank judged that there was a ”roughly even chance” that inflation would dip below zero during the first half of this year.

Britain’s GDP grew by an estimated 2.6% last year, though it slowed more sharply than expected to 0.5% in the last three months, providing the Bank with another reason to keep rates on hold.

The annual figure is the best since 2007, before the recession, and indicates that the UK is likely to have been the world’s fastest growing major economy last year.

Published: Thursday 5th February 2015 by The News Editor

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