Interest rates held again at 5%
UK interest rates were held at 5% by the Bank of England for the fifth consecutive month.
Although analysts had expected the base rate to remain unchanged this month, many economists expect rates to fall soon despite inflation worries.
The threat of inflation, which has risen sharply to 4.4% in recent months, has deterred members of the Bank of England’s Monetary Policy Committee from cutting interest rates.
However falls in house prices have affected confidence and the economy ground to a halt in the second quarter, leading to realistic fears of a recession.
Commenting on today’s decision, Nimble Thompson, regional chairman of the Institute of Directors in Yorkshire and the Humber, said: “Despite increasing pressures, the MPC have once again taken a sensible approach to the interest rates decision.
“I believe we will be in a much better position to judge the situation in a month or two when a reduction may well be the correct decision.”
Ian Williams, Leeds Chamber of Commerce’s policy director, said the Chamber believed the MPC should not wait too much longer to cut rates.
Mr Williams said: “Most analysts expected the MPC to keep rates on hold at 5% today. But business and consumer confidence is falling and there is less disposable income available, so, a reduction in rates would have been a welcome positive amid all the stories of doom and gloom.
“We understand the MPC’s concerns over inflation. But the MPC’s own analysis suggests that inflation will peak in the next two to three months, and will fall sharply next year.
“With this in mind the MPC cannot wait too long before acting and we would urge them to keep a close eye on the economy and not be afraid cut interest rates in October or November.”
Professor Peter Spencer at the University of York, who is chief economic advisor to the Ernst & Young ITEM Club, said: “This decision did not come as a surprise; though the economy has ground to a halt, the Bank remains wary of cutting rates while inflation continues to rise.
“CPI inflation reached 4.4% in July – the highest level in 16 years – and is likely to move higher in the short-term with all of the large utility companies pushing through large price rises over the past couple of months. While inflation continues to creep upwards the MPC are unlikely to cut rates. This is in case the MPC damages its inflation-fighting credibility.
“With oil prices having fallen sharply in recent months and no sign of any second-round effects on wages, we expect the Bank to reduce interest rates once there are clear signs that inflation has peaked. This could be as early as the end of this year.”
