Interest rates stay at 5%

Jun 5 2008

BANK of England policymakers have decided to keep interest rates at 5% after their monthly meeting.
A flurry of worrying news on the UK economy was not enough to prompt the Bank’s nine-strong Monetary Policy Committee (MPC) to move rates down.
Experts had expected that the MPC would hold rates at 5% for the second consecutive month as fears over inflation overshadow signs that the economy is slowing at a faster pace.
Inflationary pressures caused by the rising cost of food and fuel means the Bank has been left with no room to cut rates, according to economists.
The Organisation for Economic Cooperation and Development (OECD) today slashed forecasts for UK growth, cutting predictions for GDP from 2% to 1.8% in 2008 and to 1.4% from 2.4% in 2009 amid weakening house prices and tighter credit conditions.
The figures come as consumer confidence dived to its lowest level for nearly 18 years last month on fears of a looming recession, while Nationwide revealed a 2.5% monthly drop in house prices.
The number of mortgages approved for people buying a home also fell to a new low for the second successive month in April, according to the Bank’s own research and just yesterday, data on the services sector showed activity contracting in May with a sharp decline in outstanding business and business expectations at a 79-month low.
It seemed certain only weeks ago that rates would be reduced by a quarter-point to 4.75% at the MPC’s June meeting.
However, Consumer Prices Index (CPI) inflation is shown to be straying further from the Government’s 2% target and, with the Bank warning last month that inflation could even spike as high as 3.7% this year, hopes for monetary policy easing are fading fast.