In light of current market conditions, the base rate was not expected to increase any further due to the potential impact this could have upon the housing market, especially after both house price growth and overall gross lending figures began to fall.
Since the US non-conforming crisis rippled out into the international markets, lenders have been dramatically pulling products and tightening criteria to protect both business from the effects of the impending credit crunch.
Minutes for the meeting in September showed that the vote to hold rates was once again unanimous, however many had hoped the MPC would fall into step with the US Federal Reserve who have cut rates by half a point.
In addition, inflation dramatically dropped back to 1.8 per cent in August – well below the Government’s target of 2.0 per cent – easing the pressure on the MPC to raise rates until inflation regained a degree of stability.
The Committee is now thought to be adopting a ‘wait and see’ approach in order to fully assess how the global credit squeeze is affecting the economy.
Mark Blackwell, head of corporate and specialist lending at C&G, said: “Despite the ongoing turmoil in world markets, today’s decision by the Bank of England comes as no surprise.
"This widely anticipated decision should help maintain the resilience we have seen from the housing market throughout this year’s earlier rate rises.
"Although evidence of a slight slowdown is beginning to materialise, job security currently stands at a two year high, which will help to underpin the market. With inflation comfortably under its two per cent target, wage inflation rising slowly - at 3.5 per cent year on year – we are unlikely to see a decision to rise rates in the near future.”
Brian Murphy, head of lending at Mortgage Advice Bureau echoed Blackwell's views, saying that the MPC have acted responsibly: “While independent bodies may call for a decrease in rates to maintain economic growth, the MPC must base their decisions on the current state of inflation and the housing market.
"As inflation begins to stabilise and reports highlight the beginnings of cooling house prices I would suggest the MPC have this month got it right and are sensibly resisting any knee jerk reaction to the current economic climate.
“While I believe borrowers will see rates decrease over the coming months they will have to sit tight for a while longer and wait for market events to play out.”
Jonathan Cornell, managing director at Hamptons International Mortgages, said: “As the Government promised the safety of all Northern Rock deposits and later increased its Financial Services Compensation Scheme to calm consumer turmoil, the last thing the MPC could do was raise the base rate a further quarter point.
“With the first signs of a cooling housing market and consumer confidence at an all time low, I believe the MPC has possibly made one of the better decisions of the last few months.”
Peter Bolton King, chief executive at the NAEA, believes this latest freeze could boost fragile consumer confidence: “The UK housing market has had to withstand a number of major events in the past 12 months. The effects of multiple interest rate rises, the introduction of Home Information Packs and recent events on the worldwide economic stage have all contributed to a slowing in the market and a reduction in confidence.
“While September is usually a busy time for the housing market, we are getting reports from a number of regional markets that the month has been slower than usual – worryingly so in some cases. Agents are feeding back reduced activity and an uncertainty as to the direction of the market over the coming months. A period of stability in interest rates would at least allow time for the market and consumers to recover from recent events. A decrease could be just the confidence booster that everyone needs.”
