Bank of England Keeps Rate at 5%


The Bank of England kept the benchmark interest rate unchanged, guarding against inflation after three cuts in borrowing costs since December.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, left the bank rate at 5 percent, as forecast by all except five of the 61 economists in a Bloomberg News survey. The rest predicted a quarter-point reduction.

U.K. house prices had the first annual decline since 1996 last month, growth in service industries slowed to a five-year low, and manufacturing weakened. Concern that a recession is looming may deepen the disagreement among policy makers, who split three ways last month on how fast to cut the benchmark rate as higher oil and food prices stoke inflation.

The central bank, which last cut the benchmark rate in April, will lower it to 4.75 percent by June, according to the forecasts of all but 10 of the 51 economists surveyed by Bloomberg News. The pound fell as much as 0.3 percent against the dollar after the decision, and traded at $1.9575 as of 12:44 p.m. in London.

Britain's rate is the highest of the Group of Seven nations. The U.S. Federal Reserve cut its main rate on April 30 to 2 percent, the lowest since 2004. The European Central Bank kept its rate unchanged at 4 percent today, as predicted by all 53 economists in a Bloomberg survey.

Prime Minister Gordon Brown's government is trying to extend the economy's 63 consecutive quarters of growth and rebuild support after his ruling Labour Party suffered its worst local- election performance in four decades on May 1.

The International Monetary Fund forecasts U.K. growth of 1.6 percent in 2008, the least since the end of the last recession 16 years ago. The economy expanded 0.4 percent in the three months through April, matching the three-year low of the first quarter, the National Institute of Economic and Social Research said today.

House prices fell 0.9 percent in April from a year earlier, the first annual drop in more than a decade, HBOS Plc said on May 2. An index of growth at services companies from banks to hotels fell to the lowest since March 2003 last month, the Chartered Institute of Purchasing and Supply said on May 6. Factory production dropped 0.5 percent in March, data showed yesterday.


TradingEconomics.com, Bloomberg
5/8/2008 6:45:36 AM