No change for interest rates in UK
November 20, 2007
The Bank of England has announced this week that for the fourth month in a row interest rates in the UK are to remain on hold at 5.75%.
The Bank did not give its reasons behind the decision when it announced that interest rates were to remain on hold, but for many economists and analysts the news came as no great surprise. Many had predicted that interest rates could fall following the October MPC meeting, but many of these then changed their views over the course of the month.
Rising oil prices are thought to be one of the factors that have affected the Bank of England’s decision not to change interest rates, with concerns that the rising cost of oil could increase the risk of rising inflation levels.
Although the possible effects of the volatile financial markets upon the economy are still thought to be a concern for the Bank of England it is thought that the risk of rising inflation has been at the forefront of the Bank’s decision not to cut interest rates.
CPI inflation reached a decade high level of 3.1% in March of this year. However, since then it has steadily come down to within the government’s 2% target. The British Chamber of Commerce stated that it was disappointed with the Bank’s decision not to cut interest rates given that CPI inflation was still within target yet financial sectors and the economy were at risk of struggling. Consumer spending in October was at its lowest for a year according to the British Retail Consortium.
One industry official said that the Bank was waiting to see what happened before changing rates, stating: “The impact of the credit crunch in the UK remains highly uncertain and consequently, the MPC is waiting for more information on the extent of economic slowdown before lighting the stimulus fuse, by reducing rates.”
Alan Wright
20th November 2007
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