Interest rates kept on hold
Interest rates have been kept on hold at 4.75 per cent.
This is the tenth month in a row that the Bank of England’s Monetary Policy Committee (MPC) have frozen rates.
The Bank of England raises or lowers the underlying rate of borrowing in the UK in an attempt to keep inflation (as measured by the Consumer Price Index) as close to two per cent as possible. CPI inflation currently stands at 1.9 per cent.
However, with a worsening outlook for economic growth and consumer confidence dipping, economists are predicting the current rates freeze is set to end soon, and that the cost of borrowing could begin to fall from its three-and-a-half year high.
“The bet in the market is that rates will be heading down by the year-end and could stand at 4.25 per cent by March,” said Simon Rubinsohn, chief economist at investment management firm Gerrard.
Graeme Leach, Chief Economist at the Institute of Directors said that today’s decision was correct.
Mr Leach, said: “The key question is whether the softening in economic activity now underway, is sufficient to trigger a reduction in interest rates over the summer. Our view is that interest rates will stay at 4.75 per cent at least until the Autumn.
“There is a broad based slowdown underway – across both manufacturing and service sectors – but it is still too early to gauge how far and how deep this is. We expect to see interest rates unchanged in July and August, but thereafter, the probability of a quarter point cut is increasing.”
The Bank has lowered interest rates just once in the last 28 months, but with consumer spending retrenching and the property market lodged firmly in the doldrums analysts believe the UK economy could be in need of for a boost.
Analysts will be eagerly awaiting the publication of the MPC’s minutes for signs that the Bank is considering cutting rates.
