The Bank of England left the base rate unchanged at 0.1% in August to support the economy’s recovery from the impact of coronavirus.
Despite rumours that the Bank’s Monetary Policy Committee (MPC) could decide to slash rates to below zero, negative interest rates have yet to become a reality, with the Committee voting unanimously to maintain the rate at 0.1%.
The downturn hasn’t so far been as severe as the Bank anticipated. Although UK GDP is expected to have been over 20% lower in the second quarter of this year compared to the last quarter of 2019, the easing of lockdown measures in recent weeks has helped boost consumer spending, whilst government schemes have helped support employment.
The Bank expects the economy to shrink by 9.5% in 2020 as a whole, down from its previous estimate of 14%. It predicts that the unemployment rate will rise to around 7.5% by the end of the year, after support schemes gradually finish.
However, the outlook for the UK and global economies remains “unusually uncertain”, the Bank said. What happens to the economy and interest rates in months to come will depend on how the pandemic evolves, steps that are taken to protect public health, and how governments, individuals and businesses respond to any changes. According to the Bank, the UK economy is only likely to fully recover by the end of 2021.
The housing market and mortgages
Housing market activity appears to have returned to “close to normal levels” according to the Bank’s August report, although it acknowledged that some homebuyers are finding it harder to borrow.
Many lenders have reduced the number of mortgage deals available for those with small deposits, now often requiring a minimum of 15%. Although this makes getting onto the property ladder more challenging for first time buyers, there are still only limited options available for those with 10% deposit.
According to research by finance website Moneyfacts, rates for home movers who are looking to lock into either a two or five-year fixed rate mortgage are particularly competitive at the moment, with five year rates at less than 1.5% available to those borrowing up to 60% of the property value.
Base rate held at 0.1% in August