Interest rates held
The Monetary Policy Committee (MPC) of the Bank of England said today that interest rates will stay on hold at 4.5 per cent in September.
Last month it voted to lower base rate for the first time in more than two years – with many predicting this could see interest rates tumbling down to four per cent by spring.
But since then the Bank’s own inflation report has dampened these expectations, as have the minutes of the last MPC meeting. These showed the decision to cut rates in August was far from unanimous, with five members voting in favour and four against.
As such, today’s decision to hold rates was widely predicted, with all 89 of the economists polled by the Reuters and Bloomberg news agencies last week anticipating a freeze.
But the British Retail Consortium (BRC) expressed its disappointment, although it admitted any other decision was unlikely in light of a continuing slowdown in consumer spending.
“Last month’s reduction, while welcome, is still going to take some months to work through to the consumer and have any positive effect,” said director general Kevin Hawkins.
“At least one further cut between now and Christmas is crucial if we are to see any change in the current underlying trend – not just in the interest of retailers, but also for the wider economy.”
The chief economist at the Royal Institution for Chartered Surveyors, Milan Khatri, however, said the August cut would already have provided a boost to housing market confidence.
He believes further cuts were unnecessary for the time being, a sentiment echoed by bank Alliance & Leicester.
Mehrdad Yousefi, head of intermediary mortgages, said: “Lenders have already repriced their rates following the rate reduction last month and mortgage holders will reap the rewards of this.”
Howard Archer, chief UK economist at analysts Global Insight, added: “The committee has made it clear that it is currently in no hurry to cut rates further.
“Indeed, some MPC members are clearly far from convinced that any further interest rate cuts will be needed as they believe growth is likely to pick up over the coming months and could add to inflationary pressures.”
