MPC with no choice but to hold on

"With a sharp rise in the consumer price index last month and the bank predicting that inflation will rise to 3.7%, it is difficult to justify a bank rate cut, given that the MPC's primary job is to control inflation. At the same time, it feels like a cut in bank rate is needed to stave off the dreaded "R" word, with conditions in the housing and retail markets inclement to say the least. There is now much reason for extending the MPC's key remit to factors beyond inflation," says Drew Wotherspoon of John Charcol, the UK's leading independent mortgage adviser.

"Just one month ago expectations were odds on for a cut in bank rate in June, and on the vast majority of measures we should be celebrating a bank rate under 5% today. Most notably, GDP growth continues to head southwards and consumer confidence is getting lower by the day. However, the news over the last month has been unanimously negative. The unexpectedly high inflation figures, coupled with surging pressure on fuel, both to feed the car and the family, meant that a cut was never on the cards.

"It now seems as if we are headed towards a period of stagnant rates as the economy attempts to ride out the current problems. Where we go from here is difficult to predict but it is safe to conclude that we are walking a tightrope that is looking increasingly wobbly."

What should borrowers do now?

"If there is one message that must make it to consumers it is that if they need a fixed rate, act now. Several of the major lenders have re-priced their fixed rates upwards over the last week, and we would expect others to follow suit. John Charcol has a 2-year fixed rate that is priced at 5.99% with a £999 fee, but it will not be about for long. Should borrowers wish to take a tracker mortgage, then there is value to be had in the lifetime arena, with products around the 6% mark. Again, John Charcol has an exclusive that currently tracks at 0.99% above bank rate, and has no arrangement fee and small ERC's of 1% in the first three years. With many arrangement fees currently 2% and over, this ERC is relatively small."