Interest rates stay at 5%

May 8 2008 By Alex Turner

THE Bank of England has kept interest rates unchanged at 5% after its lunchtime announcement.
Economists had expected the decision despite some disappointing data released this week.
Figures showed a shock fall in manufacturing output in March, with a 0.5% decline coming as a surprise to experts who had forecast manufacturing production to remain unchanged during the month.
Also, the growth of activity in the services sector slowed to its lowest level since March 2003 as firms including banks, hotels and restaurants were battered by a combination of rising costs and a downturn in new orders.
Philip Shaw, chief economist at Investec Bank, said today’s decision showed the MPC remained concerned about inflation. Bank of England governor Mervyn King has to write to Chancellor Alistair Darling if inflation rises above 3%.
Mr Shaw said: “We are not surprised that the MPC has kept rates on hold at 5%.
“While there has been a degree of poor economic news, the committee remains concerned over inflation and believes the relative weakness of sterling will provide the economy with a degree of stimulus.
“We think it is most likely that the MPC will lower rates again next month.”
The Bank is due to publish its quarterly inflation report next week, which may also give further clues as to the thinking behind its decision.
When the Monetary Policy Committee reduced the rate by a quarter-point in April, the nine members were split three ways. Two members had voted for rates to remain unchanged while one wanted a bigger cut, of a half-point.