Interest rates on hold
There will be no change in the cost of borrowing in May after the Bank of England decided to leave base rate on hold.
The announcement, delayed by four days to avoid a clash with the general election, was in line with economists’ expectations following weak retail sales and manufacturing data.
Interest rates have now been at 4.75 per cent for nine months; and recent data on manufacturing, house prices and retail sales led analysts to believe a further rise was unnecessary at this stage.
Some analysts now believe the Bank’s Monetary Policy Committee will not raise interest rates, and might even begin to think about lowering them in the coming months.
Global Insight’s chief UK economist Howard Archer said: “A month ago, we had believed that a 0.25 per cent interest rate hike was highly possible at the May MPC meeting. This belief was temporarily boosted by the news that consumer price inflation had spiked up to 1.9 per cent in March.”
“Events since then have caused us to change our view. Not only do we now expect the MPC to leave interest rates unchanged on Monday, but we are now seriously wavering in our long-held belief that the eventual next move in interest rates will be up,” he added.
Kevin Hawkins, director general of the British Retail Consortium said he was relieved by the decision.
Mr Hawkins, said: “The last thing retailers or consumers need right now is another rise in interest rates, so we are relieved the BoE sensibly decided against it. However, they cannot ignore the fact that consumer confidence is very weak and shows no signs of abating – the benefits of a gradual reduction in the rate are becoming ever more apparent and the BoE cannot continue to dodge the issue.”
But the Institute of Directors said it was too early to rule out the possibility of a rate rise.
Chief economist Graeme Leach, said: “The key question is whether the recent softening in activity is sufficient to prevent a future interest rate rise, given that the economy is operating at or close to capacity and inflation is only just below the two per cent target. It is still too early to rule out completely a five per cent interest rate in the current economic cycle.”
