The Bank of England base rate is unlikely to be cut in the foreseeable future due to concerns it may further restrict lending, according to the Monetary Policy Committee.
Minutes from the committee’s November meeting reveal Bank staff met with the FSA and the Building Societies Association over the past few months to discuss the impact further cuts to the 0.5 per cent base rate might have.
The MPC has decided further cuts, while potentially beneficial for existing borrowers, could damage profit margins for lenders. The concern is that lenders might then respond in the form of higher loan rates or restricted lending.
The minutes say: “Viewed against the backdrop of the Funding for Lending Scheme, and the potential for building societies to play a material role in increasing lending, the committee judged that it was unlikely to wish to reduce bank rate in the foreseeable future.”
Committee members voted to maintain the rate at 0.5 per cent and the quantitative easing programme at £375bn except for David Miles who voted in favour of increasing the size of the programme by £25bn to reach £400bn.
The MPC maintains its position that it is too early to measure the impact of the Funding for Lending Scheme, but it now represents 30 institutions accounting for 80 per cent of all lending to the UK real economy.