The MPC: a decade on

Published 05th May 2007

It is highly likely that the majority of homeowners, especially those concerned about meeting their mortgage repayments, will be feverishly counting down the minutes until next Thursday’s meeting of the Monetary Policy Committee (MPC)

In the last twelve months, property prices have risen by a massive 11.1 per cent, with inflation recently exceeding the 3 per cent mark – more than 1 per cent over the MPC’s 2 per cent target. All these factors combine to cement the fact that the MPC will raise the base rate to 5.5 per cent at midday on Thursday. However, this particular milestone coincides with another – the MPC’s 10th anniversary.

It has been a decade since the Chancellor of the Exchequer, Gordon Brown, handed full control of the country’s interest rates over to the Bank of England.

On 6 June 1997 the newly formed MPC met for the first time, changing the rates from 6.25 per cent to 6.5 per cent. Since then the rate has seen distinct fluctuations, although the 34 changes made by the MPC have been lower and fluctuated within a narrower range than the 46 made in the previous ten years.

In the last decade, the base rate has swung between a high of 7.50 per cent in 1998 and a low of 3.50 per cent in 2003. In addition, inflation has averaged at a level nearly 2 per cent lower than in the preceding decade.

Good news for borrowers is that even though rate hikes of the past six months might have kept them on their toes in the worst kind of way, in 70 per cent of their monthly meetings the MPC has actually left interest rates unchanged.

Quick facts:
· The base rate has been increased 17 times in the last decade, but has also been cut a total of 17 times
· Since November 2001 there has not been an increase of more than 0.25 per cent
· Seven of the 34 rate changes took place in 2001 and all were decreases
· There have been four lengthy periods of unchanged rates since the MPC was introduced, the longest being 15 months between November 2001 and February 2003
· Unsurprisingly, the majority of rate changes have been made in months when the Bank of England has released its quarterly Inflation Report
· Voting has been unanimous in almost half of all MPC meetings, mainly for holding the current rate
· The external members of the committee are more likely to vote for a change than those who are part of the Bank

Martin Ellis, chief economist at Halifax, said: “The past decade has been a period of remarkable economic stability. Interest rates and inflation have both been lower and varied in a much narrower range since the MPC took over responsibility for setting rates than in the previous ten years.

“The MPC members have sensibly opted to keep a steady hand on the tiller at the majority of their meetings, however the quarterly Inflation Report is often a catalyst for interest rate changes on the Committee’s part.”
By Ariane Buteux

Source: ' What Mortgage '

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