Central bank keeps base rate on hold again
August 18, 2008
The Bank of England has announced that the base rate will be kept on hold for the third consecutive month following this week’s Monetary Policy Committee meeting. The decision has come as no great surprise to most analysts and economists, who had been predicting that the base rate would stay at 5% amidst fears over soaring inflation levels. Inflation now stands at 3.3%, and this is far higher than the government target of 2%.
For some the decision to keep rates on hold may even come as something of a relief, as there had been some speculation over interest rates actually being increased in order to try and bring inflation back under control. The majority of officials, however, had been expecting the rate to remain on hold, even though the economy is showing further signs of weakening and there has been talk about imminent recession.
Industry groups had once again been calling on the Bank of England to cut interest rates this month, given the dramatic drop in business in the manufacturing and service industries, which is affecting the economy and employment levels. However, once again the central bank has resisted these calls and has kept the rate on hold. Officials state that the Monetary Policy Committee, which sets the rates, had yet another difficult challenge in terms of weighing up a weakening economy with rising interest rates when it came to setting the rate.
One industry official said: “A crescendo of weaker news on the real economy has rightly in our view quashed expectations of monetary overkill.” An official from the manufacturing body EEF said: “If further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again.”
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