The Bank of England has kept the base rate at five per cent for the fifth consecutive month. The decision came as the bank struggles to keep homeowners and businesses, who want lower rates in the face of a more difficult economy, while keeping a lid on inflation, which traditionally rises when rates are low.
"After The Chancellor's frank comments at the weekend that Britain is facing "arguably the worst" economic downturn in 60 years which will be "more profound and long-lasting" than people had expected, it is probable that the MPC discussed very seriously whether Bank Rate should be cut as early as today,” said Ray Boulger of adviser John Charcol. “However the current elevated level of the Consumer Price Index (CPI), with further increases to come, will have been an obvious obstacle to this,"
"Because today's no change decision by the MPC was widely expected the main focus will be on the minutes, published on 17 September, to see whether David Blanchflower was still a lone voice in voting for a cut and whether Tim Besley has at last recognised that an increase would be inappropriate as the economy rapidly deteriorates. Mr Blanchflower has already indicated that he expected to vote for a 0.5 per cent cut and it is likely there was a three way spilt for the third month running, but this time with the votes being for no change, a 0.25 per cent cut and a 0.5 per cent cut.
"The recent sharp fall in the oil price provides a major fillip to the argument for the next rate cut to be soon, despite its 25 per cent fall in dollar terms translating to a smaller but still substantial 18 per cent in sterling. The CPI will probably increase for another couple of months before peaking around five per cent and this will coincide with publication of the November Quarterly Inflation Report, which is likely to be more dovish on the inflation outlook over the next two years and hence pave the way for a rate cut in November."
Date: 3rd, September, 2008
Author: Ben Wilkie
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