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Base rates held but for how much longer?

Thursday 7th January 2010

By Victoria Hartley, editorial director, Introducer Today

Bank of England Base Rates were kept at 0.50 per cent this week which was widely expected.

But the FT reports one asset manager predicting a rate rise in just two month’s time which is more interesting.

Simon Ward, chief economist at asset manager Henderson New Star said rates could rise in March - and its analytics team have been right on 12 out of 13 interest rate changes in the last two and a half years.

The vast majority of commentators, including RBS and Grant Thornton are on record betting we won’t see another rise until late 2010/early 2011.

Another lone wolf, Nick Hopkinson, director of Property Portfolio Rescue (PPR), agrees with Ward. He put out a statement today suggesting that inflation would push the base rate committee into a rate rise sooner rather than later.

He said: “The money poured into the economy via the Quantitative Easing programme [will] drive up inflation and cause 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.”

The prospect of rising borrowing costs is never a welcome one for homeowners. But it could have the happy side effect for brokers of stirring up homeowners sitting on low SVRs to head back into the remortgage market.

If increases are small, steady and eked out in droplet form over the coming year the impact on the remortgaging market may be equally measured.

But the outlook is uncertain simply because we are in unprecedented times. Another investment economist, this time from Investec Philip Shaw, said today's decision by the MPC was “easy”, but the committee would face more challenging meetings over the months ahead.

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