Global Insight expects split vote on interest rates

31 July 2006
Financial industry analyst Global Insight has predicted that interest rates will remain steady in August; although it claims that a split vote of the Bank of England's Monetary Policy Committee (MPC) is "highly likely".

The firm also says that it expects rates to rise sooner than it had first projected, possibly as soon as this autumn.

The MPC has voted 6-1 or 7-0 for unchanged rates for several months but Global Insight says that because the economy is fundamentally less stable and inflation more of a risk now than it has been previously, a rates change is probably close.

"On balance we expect the MPC to hold off from raising interest rates in August," said Howard Archer, chief UK and European economist for Global Insight.

However, Mr Archer noted that high energy prices and "uncertainties still surrounding growth were beginning to have an effect.

"A split vote within the MPC seems highly likely at the August meeting and we do now expect the Bank of England to raise interest rates by 25 basis points before the end of the year."

He said this was a "precautionary measure aimed at containing medium-term inflationary pressures" and was not indicative of a larger collapse or weak economic environment.

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