BoE holds interest rates for fourth month

June 14, 2008

Following on from the November 8th Monetary Policy Committee meeting the Bank of England has decided once again to keep interest rates on hold at 5.75%. This is the fourth consecutive month that the Bank has decided to leave rates unchanged, giving rise to much speculation as to why the interest rate has been left at 5.75%. However, when the decision was announced the Bank of England gave no indication as to why it had decided not to change interest rates for another month.

Interest rates went up five times by 0.25% a time between August 2006 and July 2007. However, after the base rate hit 5.75% in July it ground to a halt and has remained unchanged since this time. In previous months one of the reasons that the Bank of England gave for not changing the interest rate was the uncertainty that the economy faced following the widespread credit crunch. However, many think that the economy has now taken a back seat to concerns over the economy.

One of the issues that many experts think have impacted upon the Bank’s decision is the rising cost of oil, which could increase the risk of rising inflation, which the government has been struggling to keep within targets this year. Over the past few months CPI inflation has settled to within the government’s 2% target. However, in March of this year it hit a ten year high at 3.1%. One industry official stated: “It would have been very unsettling if, in the week oil prices nudged $100, the MPC reduced rates.”

Another stated: “No change to interest rates was not unexpected as neither the outlook for inflation nor the economy clearly justified a cut.” However, officials at the British Chamber of Commerce expressed regret over the decision to keep rates on hold.

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