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BoE hold rates despite rising house prices and strong growth



Bank of England keeps rates at an historic low of 0.5pc and bond buying programme at $375bn 

BoE hold rates despite rising house prices and strong growth

BoE hold rates despite rising house prices and strong growth

The Bank of England has held interest rates at a record low of 0.5 pc for more than five years Photo: EPA

By  Martin Strydom

The Bank of England held interest rates at record lows on Thursday, despite worries over a potential bubble in the housing market and strong growth.

Rates were kept at 0.5pc, where they have been for five years, and the Bank also left its bond buying programme unchanged at $375bn.

The Monetarty Policy Committee made no statement and markets will have to wait until the minutes to see how they voted.

Markets expect the Bank to raise rates next year but some economist believe the strength of the recovery and rising house prices could force the committee to move earlier.

Martin Beck, senior economic adviser to the EY ITEM Club, said: “While today’s decision by the MPC to leave interest rates on hold was predictable, the era of unanimity among MPC members may be coming to an end. Recent speeches and interviews suggest that opinions among the Committee may be diverging on the case for maintaining interest rates at their current ultra-low level.

Martin Weale, one of nine MPC members, said last week that borrowing costs should go up sooner rather than later, while Charlie Bean, who is retiring as BoE deputy Governor, said rates are likely to rise to 3pc over the next three to five years as the Bank of England adopts a “baby steps” approach to ending the five-year standstill. Mark Carney, the BoE Governor, said last month that the economy was not ready for a rate rise.

Property prices had their biggest month-on-month rise since 2002 after jumping 3.9 per cent in May, according to Halifax on Thursday. Mr Carney has said Britain’s housing market has deep structural problems and rising prices represent the biggest risk to the economy. However, the Bank has said it will not raise rates to cool the housing market, which is booming in London, but would consider further controls on mortgage lending.

Attention will now focus on the meeting of the BoE's Financial Policy Committee on June 17.

“With recent data offering mixed messages on whether the housing market is heating up or cooling down, intervention by the FPC to dampen house price growth is not guaranteed. But any action by the FPC - perhaps the imposition of additional capital requirements on high loan-to-income mortgages - will reduce pressure on the MPC to consider a rate hike," said Mr Beck, although he thinks the hawks on the MPC will remain in a minority for "some time to come".

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