Bank of England Holds Firm at 5%
UK interest rates have been kept on hold at 5% by the Bank of England following its latest meeting.
The decision had been widely expected, despite calls from businesses groups to cut borrowing costs amid growing concerns about the economic slowdown.
A recent report suggested the UK was at risk of recession, and building firms have laid off thousands of jobs.
However, the Bank was not expected to cut rates with inflation currently at 3.3%, above the 2% target rate.
The Bank’s Monetary Policy Committee (MPC) has had to balance growing evidence of an economic slowdown against the problem of rising inflation.
Analysts said MPC members were facing a tricky dilemma.
“If the MPC reduces interest rates, it risks losing control of inflation,” said Graeme Leach, chief economist at the Institute of Directors.
“Conversely, if it increases interest rates it risks losing control of growth and could trigger a recession.”
But business groups said the Bank should be ready to cut rates swiftly if further signs of slowdown emerge.
“If further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again,” said Lee Hopley, economist at the manufacturing body EEF.
Meanwhile, Ray Boulger, of mortgage adviser John Charcol, said the MPC’s decision was widely expected but the central bank was now under pressure to try to revive the economy.
“With the economic news from nearly all sectors of the economy getting worse by the day, a rate cut is badly needed to help restore some confidence to consumers and reduce the financial pressure on both them and industry,” he said.
The Trades Union Congress (TUC) added to the voices calling for the MPC to combat the slowdown.
“This was the wrong decision,” said Adam Lent, head of economic and social affairs at the TUC.
“The knock-on effects of the credit crunch and the rush of overly-gloomy headlines are already threatening an over-reaction and deeper down-turn than the actual economic news suggests.”
Earlier on Thursday, a report from accounting firm PricewaterhouseCoopers said higher living costs would mean that the consumer squeeze will worsen in 2009 and dent economic growth.
It predicted that the UK economy would grow by 1.75% this year, down from 3.1% in 2007.
Source: BBC.
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