Interest rates held
Interest rates will stay on hold at 4.5 per cent in November, the Bank of England has announced.
It is the third month in a row that the Bank’s interest rate setting monetary policy committee (MPC) has voted to keep rates at this level, following a 0.25 per cent cut in August.
The move was well trailed, with all 117 economists polled by the Reuters, Bloomberg, and AFX news agencies correctly predicting a rates freeze.
However, the British Chambers of Commerce (BCC) expressed disappointment at the decision, as it believes a cut is required to boost the sluggish economy.
“British business is disappointed that the MPC felt unable to act more boldly to counter the worsening economic circumstances and the sharp slowdown in the pace of economic activity,” said BCC director general David Frost.
He added: “While we appreciate that the MPC faces serious uncertainties, waiting too long before taking corrective action also entails major risks.
“The economic situation has worsened considerably, and business confidence is weak. It is therefore critically important that the MPC should maintain a flexible approach, and should stand ready to counter the sharp slowdown in the pace of economic activity.”
The Bank raises and lowers the underlying cost of borrowing in the UK in an attempt to manage inflation, which currently stands 0.5 percentage points above the MPC target of two per cent.
This high rate has been attributed to a recent surge in fuel prices, but with the price of oil dropping below $60 a barrel and staying there this month, its direct influence on inflation figures will be reduced.
This exposes the weaker position in retail sales and property prices, leading many analysts to expect a rate cut within the next few months.
“The Bank is being understandably cautious about reducing interest rates until they are sure the second round effects of high energy prices have not fed through to higher general inflation,” said Graeme Leach, chief economist at the Institute of Directors (IoD).
“We are relatively confident from surveys of IoD members that the second round is very weak and as a result, we expect rates will fall further over the coming months.”
