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Latest Base rate decision
Dale Mortgage Brokers comments on the latest decision by the Bank of England's Monetary Policy Committee (MPC) to hold interest rates at 0.5%, a decision that comes as no surprise to most analysts.
"It was widely predicted that there would be no change to the Base rate (BBR), and it is expected that it will remain at current levels for the remainder of this year and possibly into early next. The MPC have though it seems, surprised a number of economic pundits by announcing that rather than calling a halt to the recent programme of quantitative easing (QE) (this effectively involves the Bank buying corporate and government bonds), they are to increase the level of money being pumped into the economy by a further £50bn over and above the £125bn already spent.
"When asked recently if the process was having a material effect on the performance of the economy the Governor of the Bank of England was reported to have replied it was too early to tell and the answer was unlikely to be known for 6 to 9 months, but he was also reported to have said that he was not disappointed by its effects.
"This increase in the QE process seems to imply that in spite of a number of more positive reports emerging in recent weeks concerning the wider prospects for the economy, the MPC feel that more stimulus was required, and that to suspend the programme now was a bigger risk than to continue to pump in further funding.
"We are starting to see a number of slightly more encouraging economic indicators, for example, a recent survey from the Chartered Institute for Purchasing and Supply, showed the service sector growing at its fastest for 18 months. At the same time, house prices are now rising, according to the latest survey from the Halifax, while recent surveys by Nationwide and the Land Registry also suggested prices were increasing slightly. Although GDP has contracted by near record amounts, the rate of contraction is forecast to slow with a return to growth still being predicted early in 2010.
MAB 3495
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