Banking News Inflation Fears Stem Hopes Of Another Rate Cut 1201
Inflation fears stem hopes of another rate cut
03 March 2008 / by Rachael Stiles
Despite pressure to ease lending rates for borrowers hit hardest by the credit crunch, it is thought that the MPC will resist cutting the rate when it meets later this week, leaving it at 5.25 per cent.
February saw inflation rise to 2.2 per cent, marking yet another month spent above the Government’s target of two per cent, but the Bank of England has voiced concern that it may rise even further to three per cent in the near future, serving to keep the base rate static, potentially until May, according to experts.
Inflation is being pushed up by weaknesses in almost all sectors of industry – the sharp slowdown in the housing market, the rising price of oil, food and energy bills, and soaring mortgage repayments as homeowners come off fixed rates and struggle to find new deals they can afford.
Paradoxically, as the cost of living index rises, this situation calls for lower interest rates on behalf of the consumer who cannot keep up with repayments on their mortgage or afford to heat their homes, but it also causes the MPC to practice caution in favour of tethering inflation.
MPC members have hinted at their intentions to maintain the base rate at its current level in various speeches they have made in recent weeks. One such member was Andrew Sentence, who told a group of business leaders in Devon that the committee’s mandate is “to keep inflation on target”.
Furthermore, consumer confidence has remained low, despite February’s rate cut, so there is little evidence to suggest that another one will have a dramatic affect on the public’s outlook.
Consumer confidence fell four points to a 13-year low of -17 in February, its lowest level since December 1994, according to a survey by market research company GfK NOP. The survey found drops in all categories, which include personal finances, the general economy, the climate for major purchases and the savings index.
Rachael Joy, from the Consumer Confidence team at GfK NOP commented: “This month’s drop in consumer confidence comes in spite of the cut in interest rates earlier this month. Consumers are feeling a little less confident about their own personal finances and much less confident about the general economy as a whole. This may have been fuelled by the wide reporting on a housing market slowdown, high fuel and energy prices and rising food prices. These factors all squeeze budgets, causing consumers to be much less confident about making major purchases.”
© Fair Investment Company Ltd