Bank holds interest rates again

Thursday 5th June 2008

The Bank of England has continued its freeze on interest rates – keeping the base rate at five per cent.

While a cut was previously expected – the sudden jump in inflation has put plans for interest rate cuts on ice, despite the slowing economy in need of a boost and tightening of lending due to the credit crunch in need of mitigation.

In recent months the base rate has been cut in December, February and April, and the 'one month on, one month off' pattern was expected to continue, but inflation shot up to three per cent in April and it is due to rise further off the back of soaring food and fuel prices.

As interest rate cuts tend to push up inflation, the tool has been lost to the rate-setting monetary policy committee – which sees inflation a greater long-term threat to the economy.

A 2.4 per cent drop in house prices in May reported today by Halifax puts further pressure for an interest rate cut – but the MPC is expected to hold firm.

"The sharp fall in house prices in May adds to the already serious downside risks facing the economy, but an interest rate cut later today remains a remote possibility given the Bank of England's concern over current elevated inflation levels and risks," said Howard Archer, chief UK economist at Global Insight.

"Indeed, the Bank of England is unlikely to trim interest rates again until August at the very earliest despite markedly weakening economic activity, a moribund housing market and a deteriorating outlook."

He added interest rates could now fall to as low as four per cent, but the UK would have to wait until well into 2009.

Related News

<< Back To News Listings

News Article Search