Mehrdad Yousefi, head of intermediary mortgages at Alliance & Leicester, commented: "The MPC's decision to maintain the Base Rate will come as a welcome relief to borrowers, but many market analysts will view this latest decision by the Bank of England as a mere delay of an inevitable further rate rise.
"Inflationary pressures on the economy remain strong, including some above inflation pay deals, and they will play a key part in future base rate decisions. The consensus of opinion is that it is very likely that we will see another rate rise in the first half of 2007, so it is crucial that borrowers assess what impact any possible future base rate rises could have on their finances.
"For borrowers looking for certainty with their mortgage, the best option is to lock in to a competitive fixed rate deal now to avoid the impact of any further rate rises. Borrowers with a bit more flexibility will find some excellent Base Rate trackers available, priced at least 0.3 per cent cheaper than short-term fixed rates which might suit their financial situation."
Ray Boulger, of John Charcol, said: “This decision suggests that the two key pieces of information the MPC will have had access to, but which are not yet in the public domain, are not causing too much concern. The January Consumer Price Index (CPI) and the Quarterly Inflation Report will have been key factors in the MPC’s decision.
“The MPC commented in last month’s minutes on the expected fall in energy related inflation later this year, as a result of a combination of last year’s increases falling out of the year on year comparison and decreases in prices this year. British Gas’s announcement this morning of early cuts in both electricity and gas prices provides additional comfort in this respect. The recent increase in the oil price back up to just under $60 a barrel is unhelpful but, providing the its price doesn’t climb too much further, there is still scope for more price cuts to reflect the earlier falls in the oil price.
“There are already some early signs of a slowdown in the rate of increase in house prices and last month’s shock rate rise, coupled with talk of another increase, is putting further pressure on prospective purchasers. We noticed a much higher proportion of clients asking for a fixed rate mortgage after last month’s rise than after either of the previous increases, no doubt partly due to the shock tactics. The housing market doesn’t need a further increase in Bank Rate to slow it down, with Nationwide showing a 0.3% fall in real house prices for January, although the reported seasonally adjusted figure was a 0.3% rise.
“The fact that the MPC held Bank Rate at 5.25% indicates that any short term inflationary pressures, which will no doubt become apparent when the January CPI and Quarterly Inflationary Report are published, are not too pressing in the light of the positive inflationary expectations we already know will impact later this year. No doubt the MPC will also have taken into account the fact that much of the impact of the last three increases, particularly November’s and January’s, is still to be reflected in the various statistics.”
Stuart Law, chief executive of Assetz, said: "I am glad to see the Bank of England recognises that the risks to inflation are under control. Inflation will lower significantly towards the end of the year back towards 2% and wage demands also appear to be under control.
"I do not believe further interest rate rises are justified and in fact I would expect rates to reverse back to 5% in due course. Property price inflation is still being driven by excess demand over supply which is likely to continue for many years to come, leading to continued moderate levels of house price growth."
Colin Bell, operations director at InterBay commented: “Despite the fact that the economy is continuing to overheat, the MPC have kept rates level in order to really give last month’s rise a chance to take effect. All that considered, another rise still looks increasingly likely in the near future.
“So far the effect of the recent two rises has fuelled speculation that commercial property prices will not rise as much as we’ve witnessed in the last three years. The effect on spending has not been properly realised yet, so at the moment, commercial owners are still benefiting from brisk trading and remain upbeat about prospects for 2007.”
Jonathan Cornell, technical director at Hamptons International Mortgages, commented: “There has been fevered speculation in the City over whether January’s Base Rate rise would help cool inflationary pressure. It appears that the MPC has erred on the side of caution and opted to wait and see if January’s rate rise has helped cool the market.
"I think this is a prudent move on the part of the MPC as demand for housing continues to outstrip supply. Four rises within six months would only heap more mortgage misery on those least able to afford it. We wait with baited breath for the March’s announcement.”
