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Possible Change in Base Rate for February

Possible Change in Base Rate for February

It appears Andrew Sentance now has some company in regard to raising the base rate.  Martin Weale is now planning on standing beside Sentance and possibly vote for a 0.25% rate increase during February’s Monetary Policy Committee meeting.  During previous meetings, Sentance was the only MPC member in favor of an increase.

The base rate has been an immoveable object since the middle of 2009, and it could be nearing the end of a long run.  With inflation maintaining its constant level beyond the target rate of 2.0% set by the Bank of England, a move in the base rate is almost a necessity.  The current inflation rate is sitting at almost 4%.

The senior UK economist at Capital Economics, Vicky Redwood, commented on the January meeting and what could possibly transpire in the near future, saying: "January's MPC minutes suggest it was edging closer to a near-term rate hike. But gross domestic product figures could dissuade the waverers from rushing into a premature policy-tightening. Some members are still convinced that policy should not be tightened."

Julien Holmes, Crown Mortgage Management, commented on the impact a change in rate could have on growth, saying: "Growth is fragile at the moment but low rates could do just as much to reduce the GDP as higher ones."

He added to his earlier comment saying: “The latest growth figures were heavily influenced by the snow and to suggest that a weather-related drop has left the economy on the brink of a double dip is melodramatic.”

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