Bank of England base rate vote split three ways
Two members of the Monetary Policy Committee (MPC) voted for an increase in the base rate this month, minutes from the most recent MPC meeting show.
Andrew Sentence and Martin Weale voted for an increase to 0.75%, while six of the remaining seven members voted for no change whatsoever. The final member, Adam Posen, voted for no change in the base rate but a £50 billion increase in the asset purchase programme (more commonly known as ‘quantitative easing’).
The votes will add further to speculation that the Bank of England could increase its base rate sooner than previously expected, especially after it was confirmed that inflation reached 3.7% in December – almost double the 2% target.
Economic theory dictates that when inflation is high, the base rate can be increased to encourage higher levels of saving (as interest rates on savings are influenced by the base rate). This in turn can lead to lower spending levels, which subsequently forces down consumer prices and ‘corrects’ inflation.
However, the Bank is reluctant to raise rates while consumer lending and house prices remain relatively low, partly because of the negative impact a base rate rise could have in these areas – and on the wider economy.
But there would be some other advantages to increasing the base rate. Interest rates on savings and bank accounts would rise, which would be good news for the many savers who have been unable to get good returns on their deposits since the base rate dropped to 0.5%.
Thisismoney.co.uk says the general consensus amongst economists is that the last quarter of this year could see a base rate rise, but there could be a ‘token’ increase before then. It’s possible that the latest developments could encourage them to make a more significant move before the final quarter.
More information on how the base rate could affect your finances can be found at http://www.thinkmoney.com/mortgage/remortgage/what-is-going-to-happen-to-the-base-rate-and-how-will-it-affect-remortgages-0-3059.htm.
