8
Aug
Bank Holds UK Interest Rate
Not surprisingly the Bank of England MPC decided to leave rates
unchanged at 5% at their monthly meeting on 7th August. Whilst not
terribly popular with many it was probably a prudent decision given
that their priority appears to remain keeping inflation under
control. But at the end of the day the current rate of 5% is
precisely what it was in August two years ago when the market was
booming albeit that mortgage funds were readily available and at
some very advantgous rates but mortgages today are still available
with advantageous rates but particularly those rates linked to
longer term borrowing facilities. For example the five year fixed
rate generally is lower than the three year fixed term and the
interest on a ten year term is less than that of a five year term,
which seems to suggest in the eyes of our good and great financiers
that interest rates will eventually head downward with one forecast
suggesting a rate falling potential as low as 4.5% within the next
six months which would be comparable to the first quarter of 2006.
Certainly, one of the greatest and most influential considerations
for the bank is the reduction in cost of oil and the impact on
world wide currency rates and in particular the dollar all of which
has added a welcome boost to the stock market which has settled a
few percentage points up over night and with the biggest single
jump recorded in the US for three months. Yes of course the IMF
once again have given a downbeat forecast for growth, albeit, that
they are still suggesting that there will be growth as opposed to a
static position. Banks such as Barclays are perhaps weathering the
storm better than others in terms of their 'writedowns' and it must
be considered likely that the final disclosure of all 'writedowns'
will soon be upon us and at that point when transparency is
achieved the banks may resurrect their trust in each other and
start trading amongst themselves again soon.