Bank of England’s Lack of Interest Rate Cut Impacts Consumers

Posted 2008-01-2

Contrary to what many industry commentators expected, the Bank of England decided not to cut the base interest rate for the month. Ray Boulger, of John Charchol, suggested that may result in increased payments for mortgage holders; he approximates consumers may pay £105 more in interest than they would if the Bank of England had cut the interest rate by .25%.

Mr. Boulger expressed his own surprise at the decision to hold the rate, stating that ‘other negative economic statistics’ led him to expect a cut. One troublesome spot Mr. Boulger highlighted is inflation, pointing to NPower’s 17% price increase. However, Mr. Boulger softens this by pointing out that the consumer price index inflation is only slightly higher than the central 2% target.

In addition to expressing his surprise at the decision not to cut the interest rate, Mr. Boulger explains that if the Monetary Policy Committee goes for too long without cutting the rate, the next rate may have to be greater than had they cut it earlier.

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