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Base Rates To Be Held At 0.5%

3rd June 2009 | back to article listings BACK    print this article PRINT

I expect interest rates to continue to be held at their current low level for the next few months at least, and this would be the right decision. However, we must remember the recent comments from the Bank that it is likely interest rates will be raised before quantitative easing is reversed, once the economy is seen to be warming up again.

The likelihood is that the economy will move back to positive GDP growth in Q4 09 or Q1 10 and this certainly therefore brings a risk of rises around the end of this year. This is regardless of the Bank having just used assumptions of base rates staying at 0.5% for two further years in its latest inflation report.

Nonetheless interest rates are expected to remain relatively low for a long time, certainly longer than the housing market needs them to be, in order to support the economy as a whole into a recovery. The dilemma will be what the bank must do when housing is growing again in 2010 but the economy is still fragile ? Who will win when voting to raise rates to hold back housing versus keeping rates low to support the economy ?

It is interesting to note that sustained low rates would help stoke inflation, house prices included, but would in turn help to erode the real value of the national debt we have now taken on and therefore improve the situation for the country in the medium term. On balance we continue to believe rates will be held relatively low for around the next two years.

This news story has come from the property investment blog by Stuart Law, CEO Assetz plc.

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