Interest rates held again
THE Bank of England continued to resist pressure to increase interest rates from 0.5% today, despite growing concerns over inflation.
The Monetary Policy committee which sets interest rates instead opted to hold the cost of borrowing at its record low level for a 23rd month, fearing that a increase now may jeapordise a fragile economic recovery.
Many economists are expecting rates to rise soon, with May being seen as the likely month for movement.
David Scott, senior stockbroker at Redmayne-Bentley, said: “At the risk of further losing credibility as an inflation fighting central bank, the Bank of England has again, largely as predicted, kept UK interest rates on hold, even though inflation has been above its 3% target for more than twelve months now and set to rise to over 4% in the coming months.
“Markets are currently predicting a quarter rate rise in May with another following in November.”
The Bank is aware that it needs to try and tackle inflation, which, at 3.7%, is almost twice its 2% target.
The dilemma is though, with so little wage inflation, in the ‘real economy’, an increase in the cost of borrowing will do nothing to rein-in soaring global food, oil and metal prices, and serve only to further dent consumer confidence.
Last month, a second member of the Monetary Policy Committee, Martin Weale, voted for a 0.25% increase. He joined Andrew Sentance, in seeking a 0.25% rise.
Despite scaling back its economic forecasts this week, the business group CBI expects rates will start to rise soon, and by the end of the year will have risen 0.75% to 1.25%.
Ian McCafferty, CBI chief economic adviser, said: “This announcement to keep rates the same is not a surprise, but with more MPC members showing their concerns about inflationary pressures, the Bank is in the process of shifting its stance.
“Looking beyond the recent surprising GDP data, the CBI still predicts growth in 2011, albeit modest, but recent indicators suggest that the inflation outlook has worsened.
“We expect the Bank to start preparing the ground for a gradual normalisation of monetary policy around the second quarter of the year.”
