Interest Rate stays at 0.5%, reports London Mortgage Broker, London Mortgage Advice Friday, 8th January 2010

We are in for an interesting year as interest rates have now been kept at their record low for almost a year in a bid to help stimulate the housing market and general economy, as the Bank of England’s Monetary Policy Committee has voted to maintain the official interest rate at 0.5%.

Making comments on this decision, Stuart Law, Chief Executive of Assetz, said: "It is no surprise that the Bank of England has decided to keep interest rates at the all-time low of 0.5% this month. However, there remains a possibility that there may be some movement on interest rates this year, but probably not until well after September at the very earliest, if at all this year. If rates do rise this year, we expect the end of the year base rate to be no higher than 2%.

"Rates are likely to remain low for a considerable period of time in order to allow the economy to start to grow again significantly. This may well lead to a period of excess inflation above the current target of 2% but there is unlikely to be any intervention by the Bank of England straight away.

"Growth in the economy will lead to increased taxes, and this will enable repayment of the National debt, so there is a plus side to the Bank of England driving the economy forwards in another credit driven boom cycle and this is why we think base rate policy will remain cautious in the medium term at least."

However Nick Hopkinson, Director of Property Portfolio Rescue (PPR), warned: "While the Bank of England has chosen to take no action this month, it won’t be able to continue to do so indefinitely as it strives to manage the consequences of its recent fiscal policy. The problems of national debt and monetary tightening aside, the Bank will soon be forced to raise the Base Rate as the money poured into the economy via the Quantitative Easing programme drives up inflation and causes yet another investment bubble.

"This time bomb will inevitably cause significant pain for many households as mortgage and borrowing costs increase again against an already troubled backdrop of unemployment and higher taxes."