BoE Leaves Rates on Hold at 5.25%


The Bank of England’s monetary policy committee held interest rates at 5.25 per cent on Thursday, deciding there was not yet enough evidence of a sharp slowdown in growth to warrant further rate cuts.

The Bank’s gradual approach to cutting rates reflects its concern that the risks to its medium-term inflation target posed by persistent price pressures could be as great as those stemming from the global credit squeeze.

Rachel Lomax, deputy governor, said last week that the economy needed to grow at below-normal rates for the next two years to balance these risks, and other MPC members have made it clear the Bank is not going to follow the US Federal Reserve in slashing interest rates to offset fully the impact on demand.

Consumer price inflation is likely to rise well above target this month as statisticians factor in the full impact of recent increases in utility bills. Mervyn King, the Bank’s governor, has said CPI is more likely than not this year to pass the 3 per cent threshold at which he would have write an explanatory letter to the chancellor.

So far, evidence on the extent to which the economy is slowing is far from conclusive. Official data on fourth-quarter growth showed falling investment and weaker growth in household spending – a fact which is worrying retailers.

But the latest surveys on manufacturing and service sector activity suggest business has picked up in the last month, and so far there are few signs of weakness in the labour market beyond the City of London.


TradingEconomics.com, Bloomberg
3/6/2008 6:44:08 AM