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Bank of England minutes released today, for the MPC meeting on the 12th and 13th January 2011, continue to reveal that the majority of members on the Committee believe that the base rate should remain on hold at 0.5%.

Six members of the Committee voted in favour of keeping interest rates on hold. Martin Weale joined Andrew Sentence in favour of increasing the Bank Rate by 25 basis points, while Adam Posen continued to vote in favour of increasing the size of the Bank of England’s asset purchase programme (“quantitative easing”) by £50 billion.

The release of the minutes comes a day after preliminary estimates of growth in the fourth quarter of 2010 showed a 0.5% quarter-on-quarter contraction in the UK economy. Even if the effects of the snow on growth are excluded, the data point to zero growth, suggesting the recovery lost all momentum at the end of 2010.

The release also comes a day after Bank of England Governor Mervyn King delivered a sombre speech in Newcastle, which explained how UK households are currently going through the longest fall in real incomes since the 1920s and that there is very little policymakers can do to rectify this in the short-term.

With respect to inflation, the minutes released today suggest the majority view within the MPC remains that price growth is being largely driven by short-term and external factors – VAT rises and short-term commodity price shocks – rather than an overheating economy. This suggests there is limited taste for a rate rise within the MPC, despite December’s surprisingly high annual consumer price index (CPI) inflation rate of 3.7%.

Although the minutes show the number of MPC members voting in favour of a rate rise increasing from one to two, the vote was undertaken before members knew how bad economic growth in Q4 2010 would be.

 Renewed concerns about the state of the UK economy should now keep further rate-risers at bay. Indeed, we anticipate a renewed focus by policymakers on “going for growth”, and would not rule out further quantitative easing by the Bank of England this summer.

Home owners may soon start to feel the pain of an increase in interest rates that hasn’t even happened yet as lenders withdraw their cheap fixed rate mortgages ahead of an expected rise, warn economists.

One lender from the high street withdrew some of its most competitive mortgages last week, replacing them yesterday with higher mortgage rates. The move will cost some borrowers, who are keen to lock into a new fixed-rate deal and guard against future interest rate rises, an extra £1,050 a year on their mortgage payments.

Inflation figures released today are expected to show an increase in the Consumer Prices Index, the Government’s preferred measure of inflation.

The Bank of England has yet to increase interest rates, having kept the Bank Rate on hold at 0.5 per cent last week. But some financial analysts forecast that it will introduce an increase this year, possibly as early as June.

The Bank of England’s Monetary Policy Committee today voted to maintain the official Bank Rate paid on commercial bank reserves at 0.5%.

The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

The minutes of the meeting will be published at 9.30am on Wednesday 26 January.

Leeds Building Society has lowered the rate on its two-year discounted buy-to-let mortgage by 0.30% to 4.59%.This rate is available up to 70% LTV and allows the flexibility of 10% capital repayments each year, without penalty.

Kim Rebecchi, Leeds Building Society’s sales and marketing director, said, “We have looked carefully at the Buy-to-let market and reduced this 2 year discount, available up to 70%, by 0.30%. This highly competitive rate compliments our existing 2 year discount available up to 65% LTV, at only 4.29%.
“These buy-to-let options have been specifically designed to offer landlords greater choice and flexibility. They have no higher lending charge and 10% capital repayments are allowed each year without penalty.”

National newspapaper The Daily Mail reports that the prime minister says mortgage lenders are being too cautious and preventing the housing market from progressing.
Speaking in Leicester, Cameron says it was vital for the economy that Britain’s housing market became more competitive.But the prime minister called on lenders to return to ’respectable’ lending in order to stimulate growth.
He says: “In a way the pendulum has now swung too far the other way.
“If you are a single person, you are earning a decent salary. You go to the bank or building society, you are actually quite a good risk – they won’t give you 80% of the value, they won’t give you four times your salary.
“The housing market has become very stuck and we’ve got to get it moving again.”
Housing minister Grant Shapps is set to meet Hector Sants, chief executive of the Financial Services Authority, this week to discuss the Mortgage Market Review.

The Council of Mortgage Lenders (CML) has published its predictions for 2011, trying to provide some insights into what we can expect next year in the mortgage and housing markets.

It expects activity in the economy to be `uneven`, but doesn`t think the long-threatened double-dip recession will take place after all.

Even though the recovery we`ve seen so far has been `patchy and weak`, the housing and mortgage markets – as well as the economy in general – do `now appear to be on a more stable footing`. However, the mortgage market is still facing funding issues and people are, on the whole, less confident about borrowing large amounts of money.

Looking forward to next year, the CML expects to see 0.86 million residential property transactions throughout the UK, down from the 0.89 million we`ll probably see this year. Prior to the financial crisis, there were over 1.6 million transactions per year.

The Council also predicts we`ll see 180,000 mortgages in arrears – a slight increase on the estimated 175,000 for this year, but still less than the totals for either 2008 or 2009. And the number of repossessions is also expected to rise from 36,000 this year, going back to the level of 40,000 we saw in 2008.