Bank of England holds base rate at 5%
Written by admin on May 8th, 2008 in UK economy.
The Bank of England held interest rates at 5% today amid increasing concern over inflation levels, despite the fact the UK economy continues to slow. The move fell in line with most analysts predictions, although a rate cut of 25 base points is now expected in June.
After a two day meeting the Monetary Policy Committee made its decision today which followed last months rate cut from 5.25%.
The continued rise in price of fuel and food has continued to push inflation above the BOE target, and this freeze in base rate demonstrates the increasing concerns of the UK central bank.
“The latest data shows the economy is slowing, albeit only gradually, and at the same time inflationary pressures continue to mount,” - Ian McCafferty, chief economic adviser to the CBI business group.
This afternoon’s move is another step in the measured response that the BOE has shown since the credit crunch hit last year. Unlike the FED the BOE has steadily reduced rates remaining reluctant to make successive cuts. The FED on the other hand has continued to slash its base rate in response to the crisis.
More base rate cuts are however expected in order to prevent the UK economy from slipping into recession. The British Chambers of Commerce had said prior to the decision to hold rates that a cut would have underpinned confidence in both businesses and consumers, helping limit any potential damage the crunch would have on the economy.
“This decision was a mistake given the serious threats to economic growth,” - BCC adviser David Kern.
Roger Bootle, economic adviser to Deloitte second those thought saying that by holding interest rates the MPC risked “presiding over the deepest and longest economic downturn since the recession of the early 1990s”.
Figure released this week showed that:
- Manufacturing output fell by 0.5% in March, the sharpest rate of decline in six months.
- The UK services sector grew at its slowest rate in nearly five years in April.
- Consumer Prices Index inflation was 2.5% in March, above the target 2%.
- April food prices were up 4.7% compared with a year ago.
