Bank Decision On Interest Rates Posted on July 11th
2:03pm UK, Thursday July 10, 2008
Interest rates have been kept at 5% for the third month in a row as the Bank of England continues its fight to keep inflation under control.
Bank trying to perform a balancing act
The decision means little respite for homeowners and borrowers already faced with soaring fuel, food and energy bills.
But it comes as the Bank’s nine-strong Monetary Policy Committee (MPC) grapples with inflation at 3.3% - and rising.
Experts believe it will climb as high as 4% before heading back to the 2% target set by the Government.
The MPC is facing a delicate balancing act between keeping inflation in check and avoiding an economic slowdown.
Earlier this week business leaders at the British Chambers of Commerce warned of a “serious risk” of recession.
The UK has also been hit by a raft of poor news on the housing front.
Builders have axed around 5,000 jobs and the latest survey from the Halifax showed house prices falling 2% in June.
Donna Bradshaw, Sky News Money Panel
All this on top of rocketing household bills has put a huge dent in consumer confidence.
Graeme Leach, the Institute of Directors’ chief economist, said rate-setters were “caught between a rock and a hard place”.
“At this point we believe it is correct to err on the side of caution with regard to inflation and leave rates unchanged.
“The MPC is acutely aware that if the inflation genie escapes from the bottle, it will be very hard to put it back in again,” he said.
Lee Hopley, head of economic policy at the EEF manufacturers’ organisation, agreed it the MPC was right to keep inflation on hold for the moment.
But he added: “If further gloom descends and the economic downturn gathers pace, the Bank needs to be ready and willing to cut rates once again.”