Bank keeps interest rates on hold again
Interest rates are to remain unchanged at 3.75 per cent, the Bank of England’s Monetary Policy Committee has confirmed.
Although economists are virtually convinced that interest rates will have to rise during 2004 – many believe they will peak at around 5 per cent at the end of the year – the MPC has again resisted pressures to put a brake on the economy.
After increasing base rates by 0.25 per cent for the first time in four years in November, from the 50-year low of 3.5 per cent, the Bank also rejected putting them up in December.
However, the relief is likely to be short-lived. The Bank of England issues its inflation report next month, which will include information on the adoption of the new Harmonised Index of Consumer Prices (HIPC) inflation measure.
This, experts suggest, will give a much clearer picture of the economy, not affected by short-term distortions. The Bank’s “wait and see” policy is then likely to be pushed into fulfilling the market’s expectations.
Nonetheless, the growing strength of the euro against the US dollar – it hit a record level of $1.28 earlier this week – is building momentum for the European Central Bank to cut its interest rates from the current 2 per cent.
Any such a move by the ECB would exert a countervailing effect on the Bank of England’s thinking, leaving it very much up in the air as to where interest rates will go next.
