Base rate to stay low in 2010

by Ed Bowsher on 08 October 2009  |  0 comments
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The base rate looks set to stay low for some time to come. That means tracker mortgages look attractive.

Today's 'no change' decision on the base rate wasn't a surprise. There have been no signs that the Bank of England is ready to raise the base rate yet. 

The interesting question is what will happen next year. Inflation hawks worry that the Bank of England has printed too much money and inflation will jump next year. Then the Bank will have to raise the base rate sharply to choke off rising prices. 

But that's not my view. I don't think inflation is set to take off in 2010. Just this week, we learned that manufacturing production fell in August to its lowest level since August 1992. That's not what you'd expect to happen if prices were about to soar. 

Yes, we'll probably see modest rises in the base rate next year, but I'd be very surprised to see the base rate go over 2%. 

Given that background, I think that mortgages which are linked to the base rate look a good bet for many borrowers. Thing is, there are some great tracker mortgages on offer at the moment - in particular Woolwich's 2.79% tracker (Barclays base rate + 2.29%.)  You're only going to be locked in on this deal for two years. I reckon the base rate will stay low enough during that time to make this a nice deal.

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