Bank of England Holds Rates at 5%

The Bank of England’s Monetary Policy Committee voted to leave interest rates unchanged at 5.0 per cent on Thursday following its monthly two-day meeting.

The move was widely expected as the economy faces twin pressures on the inflation and domestic growth front, which demand opposing policy responses.

Bank of England Governor Mervyn King has already had to write one letter to the Chancellor this year explaining why CPI, at 3.3 per cent, is so far above the medium-term 2.0 per cent target and what measures the MPC plans to address it.

That letter pointed in particular to soaring prices for oil and other commodities which are produced outside the UK and which the Bank can do little to affect immediately.

However, a variety of other indicators, including results from the closely-watched Purchasing Managers’ survey and recent industrial production numbers, along with plummeting housing transactions and falling house prices, point to a weakening economy.

So long as consumers find their spending constrained by rising inflation, and employers do not feel pressure to raise wages in line with prices, the slow down in demand may help to reduce inflation over the medium-term.

Bank of England Holds Rates at 5%, Financial Times
7/10/2008 6:38:11 AM