Dovish Bank holds rates again
THE Bank of England is increasingly expected to anchor interest rates at their historic low for the duration of 2011, prompting lenders to slash the interest on fixed rate mortgages.
Two-year fixed rate loans dipped to their lowest cost since the beginning of the year yesterday as Bank rate was held at 0.5 per cent for the 27th month in a row. An average two-year secured loan costs 4.41 per cent, down from 4.58 per cent in March, the website Moneyfacts revealed yesterday.
Five year fixed rates are down to 5.41 per cent, it emerged.
“The financial markets are not pricing in an interest rates hike until May of next year,” commented Markit’s Chris Williamson, after the Bank confirmed its latest decision.
“On the basis of the Bank’s outlook for inflation, the door is wide open to a rate hike,” added Alan Clarke of Scotia Capital.
“However, the committee has shown virtually no inclination to walk through that door and deliver a rate hike.”
Separate data released yesterday exposed only modest progress in the effort to “rebalance” the UK economy towards exports.
Yet despite a narrowing of the UK’s visible trade gap in April (from £7.7bn to £7.4bn), the surplus in services also shrank by the same amount (from £4.9bn to £4.6bn).
The overall trade gap was effectively unchanged, at £2.8bn.
“There is no good news in today’s trade balance figures,” said Nida Ali of the Ernst and Young Item Club.
“The trade deficit narrowed for the wrong reason, namely a fall in imports rather than an increase in exports, adding further confirmation to the fact the domestic demand in the UK remains exceptionally weak.”
Importers’ morale has sunk to an all-time low due to the effects of high inflation, a survey by Travelex revealed.
Three in five businesses that trade internationally are concerned over rising inflation and fewer than half thought a depreciated pound would “result in an export-led recovery”.