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BoE leaves rates unchanged at 5%

BoE leaves rates unchanged at 5%
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First Published: Thu, Aug 07 2008. 04 34 PM IST
Updated: Thu, Aug 07 2008. 04 34 PM IST
Reuters
London: The Bank of England (BoE) held interest rates at 5% on Thursday for the fourth straight month, and borrowing costs are expected to remain on hold for a while as policymakers balance slowing growth and rising inflation.
All 76 analysts polled by Reuters had predicted the no-change decision. Most expect steady rates for the rest of the year, followed by cuts next year to revive the economy once inflation starts coming down towards the 2 percent target.
News on the economy is worsening and fears are growing that Britain could soon enter recession for the first time since the early 1990s when hundreds of thousands of people lost their jobs and homes.
House prices are sliding even faster than they were then. Data from Britain’s biggest mortgage lender on Thursday showed house prices down a record 10.9% on the year in July.
The property downturn is also battering consumer confidence and taking its toll on the wider economy as homebuilders cut thousands of jobs and household goods sales dive.
Inflation concerns
One Bank of England policymaker, David Blanchflower, wanted to cut rates last month. He says swift action is needed to prevent the economy hitting the skids.
But another, Tim Besley, wanted to raise rates in July. The European Central Bank, which is also expected to hold rates steady on Thursday, has already raised interest rates once this year because of worries about inflation which is affecting economies all around the world.
Inflation in Britain is running at nearly twice the central bank’s target and could soon hit 5% as utility companies have raised their tariffs by up to 30%.
Economists are now waiting for the BoE’s new forecasts next week to see where the central bank thinks inflation will be in two years’ time for a clearer idea of the next move in rates.
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First Published: Thu, Aug 07 2008. 04 34 PM IST