Base rate is frozen

Interest rates have been held at 5.5 per cent but mortgage borrowers may be in for a bumper reduction in February.

Today's (January 10th) decision was not too big a surprise but it has acted to fuel forecasts that a reduction is almost certain in February.

Ian Kernohan, economist at Royal London Asset Management (RLAM), said that there may even be a 0.5 percentage point cut next month.

"Not wholly unexpected, although the market would not have been surprised if they had cut rates," he said.

"I expect a cut next month and depending on how bad the news is over the next few weeks, this could be a 50 basis-point move, as the MPC [Monetary Policy Committee] seeks to head off the risk of a recession.

"The February Inflation Report will provide good opportunity to explain their strategy in greater detail, in particular their thoughts on the global economy and near-term inflation pressures," added Mr Kernohan.

The base rate was cut from 5.75 per cent to 5.5 per cent in December.

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