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Bank holds rate and reaffirms easing strategy

The Bank of England has held the base rate at 0.5 per cent and has also reaffirmed its commitment to £75bn of quantitative easing.

The Bank’s Monetary Policy Committee voted to maintain the rate at 0.5 per cent. The Committee also voted to continue with the programme of asset purchases totalling £75bn until June. The Bank has so far released £26bn of ‘new money’ into the scheme.

Bestinvest head of mortgages Peter O’Donovan says:”The Monetary Policy Committee has unsurprisingly held rates for the first time since October last year.

“With the base rate at 0.5 per cent there was always going to be little room for manoeuver. The Bank will no doubt wait and see how quantative easing and other measures will affect the economy before deciding if a further cut is required.”

Charles Stanley chief economist Edward Menashy says: “Attention is now focused on quantitative easing; overall £150bn has been allocated for these purchases in two tranches of £75bn, and anecdotal evidence suggests that £20bn of gilts have been bought leaving the Bank of England well on target to meet its initial objective of £75bn. However it has had more of a struggle in buying corporate bonds, with purchases to date amounting to less than £400m.

“The initial impression is that quantitative easing has caused market interest rates to fall and confidence to creep back into lending, whilst inflation expectations have remained contained.

“Developments in the gilt market are taking a distinct shape. Investors are concerned about the short term deflationary outlook but seem more worried about longer term inflationary prospects.”

As a result, John Charcol senior technical manager Ray Boulger says advisers should be looking at their client’s mortgage situation:  “A clear pattern is emerging here.  Buyers are queuing up to buy index linked stock but are nervous about buying very long dated fixed interest stock. This is a very clear warning sign of the dangers to borrowers of sitting on a variable rate mortgage for too long or of buying only a short term fixed rate such as two years.  

“The safest course of action is to buy a five-10-year fixed rate, although the state of the economy is so bad that there is probably a window of several months in which to do this.”


Tension attention

Brokers, networks and homebuyers have used the hiatus in mortgage activity to strengthen their position and gain competitive advantage. Major players that want to succeed have focused on getting match-fit for the new season and are waiting for the signal that the game is about to start.

Write of passage

One of the dubious benefits of having been a personal finance journalist for more than a couple of years is that, eventually, people pretend they want to know your opinion about issues related to money.

The long haul

River and Mercantile is a business with roots stretching back to the 1800s, founded to finance the growth of Argentina. Since its birth in 1881, the company slowly developed into an investment specialist, running five closed-ended funds with £400m under management by the 1990s.


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