Interest rates kept on hold for moment
March 8, 2008
Following the most recent Monetary Policy Committee meeting the Bank of England has announced that it will be keeping interest rates stable at 5.75% for the moment, adding that the global credit crunch and the fall in the rate of inflation were both factors that had been considered in its decision not to raise interest rates further. Interest rates have already risen five times since last August, rising from 4.5% to 5.75% through a series of five quarter point interest rate rises.
One of the reasons that interest rates have been on the rise is the rise in CPI inflation, which shot up to a ten year high of 3.1% in March, exceeding the government’s target rate of 2% by a significant amount. However, following the last interest rate rise in July CPI inflation has now fallen to within target, coming in at 1.9%. This factor, along with the potential effects of the global credit crunch, has contributed to the decision of the MPC to keep interest rates at 5.75% according to a statement that was issued by the committee when the announcement was made.
Many experts had been predicting that interest rates would rise again at least once this year, which would have meant interest rates hitting 6% or above. However, officials now state that this is becoming less and less likely taking into consideration the statement made by the Bank of England. However, officials also state that the Bank of England needs to make a firm decision to keep rates on hold for now rather than just for this month.
The global credit crunch has stemmed from the sub-prime crisis in the United States, where record defaults have led to rocketing foreclosures following interest rate rises. Many lenders in the UK are now becoming more stringent over sub-prime lending as a result of this, with some taking their sub-prime products off the market on a temporary basis and others have withdrawn their products from the market altogether. Some have also raised interest rates on sub-prime products by a significant amount to cover themselves.
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