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The UK's MPC, having cut base rate by 25 bps to 5% at their April meeting, followed the widely predicted path and held for the fifth consecutive month in September. Clearly a decision of balance between an economy heading for recession, a property market in the doldrums and the continuing effects of the credit crunch - versus inflation (up to a new eleven year high of 4.4%). Still rising food and energy costs are currently having and are anticipated to increasingly have, an adverse effect on inflation in the immediate future. Nevertheless, a reduction of 25 bps cannot be discounted before the year end.
The ECB raised the Eurozone rate by 25 bps in July, to 4.25%. This was the first increase since June 2007. However, faced with the same balancing dilemma as the MPC, the rate was held at 4.25% at their September meeting.
The FOMC held the Fed Rate at 2% in August, for the second consecutive month, having drastically cut it from 5% at the start of the year. Balancing inflation, against low economic growth, would appear to be their main focus now and it is possible that the only way next for the Fed is up.
For the UK in the short term, a neutral stance is sought - although the MPC had previously indicated that rates were perceived as “near neutral” - in this market short-term products and flexibility are the key to the most effective arrangements, as they offer the most beneficial terms and value, unless security over a longer term is of paramount importance.
THESE ARE MMG'S OPINIONS AND SHOULD NOT BE CONSTRUED AS ADVICE
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Bank Of England Base Rates
Historic Data
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