Bank ‘hamstrung into interest rate hold’
The Bank of England would have cut interest rates today if it had a sufficiently broad remit, the Liberal Democrats economic spokesman has claimed.
Instead the Bank’s monetary policy committee (MPC) voted to hold interest rates at 5.5 per cent, despite many pundits predicting a fall.
After increasing the underlying cost of borrowing three times in 2007, the MPC finished the year by cutting the 5.75 per cent base rate by a quarter of a percentage point.
But with consumer confidence stalling and the economy heading for a slowdown, many predicted the MPC would again vote to cut rates this month, despite the knock-on inflationary concerns.
Speaking after the hold was announced, Lib Dem economics spokesman Vince Cable said the Bank of England would have cut rates if it made its decisions based on the wider economic outlook, which reveals “rapidly” slowing consumer demand.
Instead the Bank – which was given the freedom to set interest rates by Gordon Brown in 1997 – was “hamstrung” by too narrow a remit.
Mr Cable said: “Its actions to control inflation are based on a measurement which, because it doesn’t include house prices, bears little resemblance to actual inflation.
“Strong inflationary pressures from high fuel and food prices have inevitably made it difficult for the Bank of England to cut interest rates. But if it was able to act on predicted falls in the housing market it would be able to counteract these pressures.”
Mr Cable warned the Bank of England “will continue to find itself caught between a rock and a hard place” while it is “limited by such a narrow remit”.
Analysts are now predicting the MPC will cut interest rates to 5.25 per cent in February in a bid to boost consumer spending.
