Base rate held, but rising inflation could increase demand for debt help

08/02/2010

More families could find themselves in need of debt help following the Bank of England's (BoE) decision to hold interest rates at 0.5 per cent for another month.

Inflation has risen significantly in recent months and reached 2.9 per cent in December, well above the two per cent target, leading the bank's Monetary Policy Committee to hold the base rate at its all-time low in February.

While the BoE believes its decision will lead to a medium-term drop in inflation, it warned that the Consumer Price Index likely rose further in January due to high petrol prices and an increase in the VAT rate.

What's more, the central bank suggested that pay growth has remained "subdued".

This means that more consumers could find their finances stretched to the point where they need debt help to stay afloat before inflation drops to its target level.

While a 0.5 per cent base rate should be a good thing for consumers with debts to pay on mortgages and personal loans, there is strong evidence to suggest that few are seeing the benefits of low-interest repayments.

In fact, research published last week by Moneyfacts indicated that personal loans rates now stand at their highest in nine years as lenders look to minimise the level of lending risk.

Posted by Jim Mead

Tags; Current UK Economy,

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