Bank holds base rate at 5.25 per cent

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Friday 7th March 2008

The Bank of England has elected to maintain the base rate of interest at 5.25 per cent in March, it has been announced.

A statement on Thursday indicated that the Banks monetary policy committee (MPC) has decided to leave the rate unchanged after a 0.25 per cent reduction in February - which followed an identical fall in December.

Commenting on the decision, Abbey mused that committee members might be attempting to balance competing pressures of slowing economic activity - which would call for a reduction in the base rate - and rising inflation, which in isolation would necessitate an increase.

Meanwhile, Alliance& Leicesters director of intermediary sales, Mark Blackwell, warned consumers against plumping for variable rate mortgages too early: "Currently variable & fixed-rates are similarly priced. However, given the challenges faced by the MPC, borrowers will need to think very carefully before purchasing a variable-rate option as any short term benefit from any fall in rates this year can easily be eroded if rates start to go up in 2009."

He added that fixed-rate products continue to be the "wise choice" for a large number of borrowers.

The Royal Institution of Chartered Surveyors stated that the Banks decision for March rates was "predictable" and observed that, while the housing market continued to wane, the rest of the economy was demonstrating greater vigour.

And Lloyds TSB spokesperson Trevor Williams asserted that the Bank was being forced to "walk a tightrope" of rising inflation and an economic slowdown.

However, those with mortgages may be reassured to hear that Lloyds joins those institutions that believe the UK economy remains in "relatively good health".

Growth in retail sales, money supply, manufacturing and services "are all signs of an economy that is still far from recession - and that means rates could be kept on hold for some months to come".
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