No change in interest rate for August
September 18, 2008
Following the Monetary Policy Committee meeting, held last week, the Bank of England announced that the base rate is to be kept on hold for yet another month, remaining at 5%. The base rate fell three times between December last year and April of this year, each time by 0.25%, taking it from 5.75% to 5%. However, fears over soaring inflation levels have resulted in the majority of members voting to keep the rate on hold.
As has been the case for many months now the MPC and Bank of England have faced a tough decision with regards to interest rate movement, as they have had to weigh up the slowing economy with soaring inflation levels. There were fears that the base rate could actually rise as a result of rising inflation, but members have decided that the best move is to keep the rate on hold for another month. In last months vote one member voted for a cut in the base rate whilst one other voted for an increase.
Whilst many industry officials are now predicting that the rate of inflation will soar to 5% before the year is out, having already rocketed to more than double the government’s target of 2%, there are also fears over how quickly the economy will continue to slow.
However, one economist stated: “It should not have come as surprise to anyone that, on balance, the bank felt it could do nothing but sit tight this month - a situation that is likely to prevail for a few more months.”
Another industry official said: “The MPC continues to be pulled in opposing directions by rising inflation and slowing growth. However, the balance of risk appears to be shifting more rapidly. A cut in interest rates may be needed sooner rather than later to prevent the economy from drifting towards recession.”
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