Banking News Bank Of England Plays Safe With Interest Rate Freeze 1887
Bank of England plays safe with interest rate freeze
10 July 2008 / by Rebecca Sargent
Rumours were circulating yesterday ahead of today’s decision which could potentially have a huge impact on the UK’s financial situation. Some experts claimed that the Bank does not yet have the confidence to make a decision either way as the balance is so fragile this month.
The MPC’s minutes, that are due to be published later this month, will reveal more but as it stands it is clear any decision would have been a tough one for the policy makers today.
Inflation is high and at risk of being pushed dangerously higher as it is predicted to become double its target rate of two per cent in the coming months. The UK economy is also at risk of slowing as employment takes a hit and increased costs hit businesses. Consequently, it seems the Bank of England has decided to play it safe until further notice.
However, according to Fool.co.uk, the Bank’s decision will be a disappointment for two out of three consumers. Head of personal finance at Fool.co.uk, David Kuo, said: “The decision by the Bank of England to keep interest rates unchanged will add to the doom and gloom felt by 31 million people.
“Consumers have to deal with rising fuel bills, climbing food prices and household budgets that are getting increasingly stretched. Additionally, mortgage lenders have refused to pass on the central bank’s three rate cuts since December.”
Conversely, Trevor Williams, chief economist at Lloyds TSB Corporate Markets, commented: “By holding rates, the Bank of England has made the best it can of a very difficult decision. The UK hasn’t yet reached recession, but the worry is that raising rates could trigger this. Equally, not raising rates could risk even higher inflation later on.
“The best option is to wait until the inflation picture becomes clearer. Importantly, this means ensuring that inflation is past its peak – or risk further elevating inflation expectations – before considering in which direction rates should move next,” Mr Williams concluded.
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