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Sighs of relief...for now - 2 August 2007

This lunchtime the Bank of England Monetary Policy Committee voted to keep the base rate of interest at the 5.75 per cent level for a second month, resulting in many homeowners breathing a huge sigh of relief.

However, there are questionmarks over whether or not the Bank has done the right thing for the long-term future of the UK property industry. Some analysts are of the opinion that at a time when question marks are being raised over the health of the credit industry in the UK, the last thing the Bank of England should be doing is encouraging further borrowing by those wishing to buy property.

Of course, the jitters suffered in the stock market this week over the sub-prime lending market are likely to have been one of the major reasons behind this decision to freeze interest rates. The Bank of England is more likely to consider itself responsible for keeping some optimism in the market for the short term, while investors work out the implications of sub-prime lending.

Although both the London and New York Stock Exchanges suffered major falls as a result of concerns over the size of the credit burden, there has been some reassurance in the past few days. The optimism seems to stem from a realization that it is only natural that interest rate rises will cause more problems in the sub-prime market than anywhere else, as this market is, by definition, more vulnerable to changes in repayments than any other.

The announcement of interest rates staying the same for a further month will also come as good news to the 8.2 million UK adults who have over £10,000 of unsecured debt to their name. Consequently, the number of people who are struggling to meet credit repayments is also increasing significantly.

Experts predict that this respite is unlikely to last, and that base interest rates will hit six per cent before the end of the year.

 

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