Bank of England holds interest rates at 5.25%
Thursday, 06 Mar 2008 12:01
Interest rates: Bank of England steady now, but cuts expected
The Bank of England today held interest rates firm at 5.25 per cent.
The move was widely anticipated as pressures on inflations continue despite fears of a slowing economy.
However, the bank is now being pushed towards making a cut in April as rising oil and food prices – along with the ubiquitous credit crunch – put pressure on the economy.
Steven Marks, lending executive at Newcastle Building Society, said: "It's no surprise that the MPC has opted to hold rates at their current level, although the overall trend is still likely to be downwards, with one or two further cuts to come this year.
"The committee has the difficult task of balancing the slowing housing market with rising energy and food costs, and our current feeling is that they will wait for a few months to see whether a more settled picture emerges."
Analysis from Capital Economics suggests the longer the monetary policy committee (MPC) waits for a rate cut, the greater it will have to be.
"Recent economic news has deepened the dilemma facing the MPC posed by slowing activity on the one hand and strengthening price pressures on the other," said Julian Jessop at Capital Economics.
"The sharp slowdown in household spending growth and the outright fall in investment suggest that higher interest rates and the credit crunch are taking their toll on spending.
"At the same time, though, there is little evidence that the weaker activity environment has started to weigh on inflation. If anything, price pressures have strengthened since the MPC last met."
Mr Jessop went on to predict – as the Bank did in its last inflation report – that inflation could head up to three per cent , as energy and food prices couple with weaker sterling.
"The MPC is likely to continue to cut interest rates only gradually, with rates likely to remain on hold until May," he said.
"However, the fairly modest pace of policy loosening is likely to exacerbate the economic downturn, resulting in interest rates having to fall further than would otherwise have been the case."
He concluded interest rates would eventually fall to four per cent in 2009.