Bank Holds The Base Rate
Despite, or perhaps because of, pressures of inflation and the threat of recession pulling interest rates in both directions, the Monetary Policy Committee decided to keep the base rate at 5% for August. The European Central Bank followed suit by holding its rate too.
As expected the Bank of England held interest rates at 5% for August. There was no increase in the rate in an attempt to tackle rising inflation, and no cut in the rate to try and boost the economy. The Bank’s Monetary Policy Committee held the middle ground.
It’s the fourth month in a row that the MPC has kept the rate at 5%, despite the rising costs of food and fuel prices. In addition, energy bills have been rising, and are set to go even higher, as British Gas said it was raising gas prices by a third just last week. Of course, the consumer is left with little choice in most of these areas, so a rise in interest rates would have no positive impact on inflation as far as these areas of rising prices are concerned – and it would make many households worse off, thereby deepening the economic gloom.
Although the MPC has to try and keep inflation close to the Government target of 2%, the Consumer Price Index has crept up to 3.8%, and is forecast to go higher – maybe even up to 5%.
Despite rising inflation, the MPC obviously also keeps an eye on the economy and earlier this week there was news of the fastest fall in manufacturing activity for almost ten years. There is a growing possibility of a recession, and that means that the MPC would like to keep interest rates down. Increasing interest rates might only make a recession longer and deeper.
Experts were in broad agreement that a ‘hold’ of interest rates was the wisest option in the circumstances. It should give confidence to those to whom the interest rate is so critical. It may even give mortgage lenders more scope to cut – but, most certainly, hold – their variable rates, which will bring relief to mortgage holders.
Following the Bank of England’s decision to hold rates this month, the European Central Bank also kept rates in the Euro zone unchanged, at 4.25%.
