News & Current Affairs

August 25, 2008

No move for August interest rate

Filed under: Uncategorized — expressyoureself @ 2:23 pm

After the voting at the Monetary Policy Committee meeting that was held last week the Bank of England has announced that the base rate will not be moving again this month, and will remain on hold at 5%, which is where it has been since April. The base rate was cut three times between December 2007 and April of this year, but since then rocketing inflation levels have resulted in it being kept on hold, although prior to this many officials had expected the base rate to continue being cut over the course of this year – something that is now looking far less likely.

The decision of the central bank to keep the base rate on hold was treated with scepticism by officials from the British Chambers of Commerce, who stated: "The MPC cannot ignore the fact that recession threats have worsened. While the near-term rise in inflation is unavoidable, it is also temporary as weaker growth would clearly push down inflation sharply next year. Limiting the threat of a major recession must be the priority."

Officials from the EEF also said that the central bank may have to consider cutting loan rates soon due to the state of the rapidly slowing economy, stating: "The MPC continues to be pulled in opposing directions by rising inflation and slowing growth. However, the balance of risk appears to be shifting more rapidly. A cut in interest rates may be needed sooner rather than later to prevent the economy from drifting towards recession."

However, one economist said that the lack of rate cuts could go on for some time, as there is little choice of the MPC, stating: "It should not have come as surprise to anyone that, on balance, the bank felt it could do nothing but sit tight this month – a situation that is likely to prevail for a few more months."

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