BoE holds UK interest rates at 5 pct as expected

LONDON - The Bank of England held interest rates steady at 5.0 percent on Thursday, in a widely expected decision as policymakers tussle with the twin evils of a slowing economy and surging inflation.

By (Reuters)

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Published: Thu 10 Jul 2008, 7:04 PM

Last updated: Sun 5 Apr 2015, 12:48 PM

Annual inflation is at its highest -- 3.3 percent -- since the BoE won the power to set rates in 1997, making it hard to cut borrowing costs even though the housing market is weakening sharply and surveys point to a shrinking economy.

Britain's biggest mortgage lender Halifax said on Thursday that house prices fell at a record annual pace in June. Prices are now nearly 10 percent below the peak hit last August.

Despite obvious signs of a cooling economy, some policymakers considered raising rates at last month's meeting to counter the inflation threat. The BoE has said it would not be surprised to see inflation spike above 4 percent this year.

The BoE is charged with keeping inflation at a 2 percent target, not to manage economic growth.

The central bank will be hoping that a slowing economy can help to tame price pressures eventually. But there is also a growing risk of recession, and that could drag inflation too low.

By keeping rates on hold this month, the BoE is buying itself a little more time to see what interest rate path is required to bring inflation back to target over the medium term.

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