Why Interest Rates Won’t Be Changing Anytime Soon.

When the global financial crisis followed the credit crunch back in 2008, the Bank of England was one of the first institutions to respond to the concerns of those who were already struggling with high mortgage repayments. Years of easy credit and the fashion for buy-to-let purchases had led many borrowers to a situation where any reduction in their income could place them in serious financial trouble. The Bank of England responded by dropping the base rate to an almost historically low level – it's currently 0.5%.

While this was great news for those of us who took some mortgage advice and got on a Tracker-type mortgage, anyone with significant savings began to lose out. Perhaps that £20 grand in the bank was earning you 3-4% p.a. - now it's earning you virtually nothing. What makes it worse is that with inflation significantly higher than the interest rate, in real terms you are losing money; that lump sum is not worth as much as it was in early-2008.

The bad news for savers is that there's really no end in sight for this situation. While the low interest rate gave borrowers a financial breather, it didn't stimulate the type of spending the Bank of England had hoped. Consumers still aren't spending money on things like travel, they're saving it in case things get even worse.

The Bank of England would like to raise interest rates slightly if only to combat the relatively high inflation figures we've been witnessing the past three years but it can't – even a small rise would push hundreds of thousands of borrowers into a perilous financial position.

Interest rates will not be changing anytime soon – at least through 2012 and possibly longer. What's needed is an improvement in the economy via job creation, increased consumer confidence and spending. Inflation is also on the way down, at least temporarily, so that's one argument in favour of interest rate rises shot down. If you're got a Tracker mortgage and keep up with mortgage news, you can afford to be a little smug right now.