BoE leaves UK rates at 5 pct, no move likely soon


BoE leaves UK rates at 5 pct, no move likely soon

LONDON - The Bank of England held interest rates at 5.0 percent on Thursday for the fourth straight month, and borrowing costs are expected to remain on hold for a while as policymakers balance slowing growth and rising inflation.

By (Reuters)

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Published: Thu 7 Aug 2008, 6:12 PM

Last updated: Sun 5 Apr 2015, 11:51 AM

All 76 analysts polled by Reuters had predicted the no-change decision. Most expect steady rates for the rest of the year, followed by cuts next year to revive the economy once inflation starts coming down towards the 2 percent target.

'The (Monetary Policy) Committee will likely stand pat for the remainder of the year as the tug of war between slower growth and mounting price pressures continues,' said Stuart Porteous, head of RBS Group Economics.

'We expect rates to be lowered next year as inflation comes off its peak and the economy struggles to find its feet.'

Financial markets showed little reaction. The FTSE-100 index of leading shares has already fallen 800 points since mid May and the pound has shed 6 cents against the dollar in the past month as the economic outlook worsens.

Fears are growing that Britain could soon enter recession for the first time since the early 1990s when hundreds of thousands of people lost their jobs and homes.

House prices are sliding even faster than they were then. Data from Britain's biggest mortgage lender on Thursday showed house prices down a record 10.9 percent on the year in July.

The property downturn is battering consumer confidence and taking its toll on the wider economy as homebuilders cut thousands of jobs and household goods sales dive.

One Bank of England policymaker, David Blanchflower, wanted to cut rates last month. He says swift action is needed to prevent the economy hitting the skids.

But another, Tim Besley, wanted to raise rates in July. The European Central Bank, which is also expected to hold rates steady on Thursday, has already raised interest rates once this year because of worries about inflation which is affecting economies all around the world.

Inflation in Britain is running at nearly twice the central bank's target and could soon hit 5 percent as utility companies have raised their tariffs by up to 30 percent.

Economists are now waiting for the BoE's new forecasts next week to see where the central bank thinks inflation will be in two years' time for a clearer idea of the next move in rates.

'We suspect that its central forecasts will show inflation coming down to the 2 percent target in two years' time,' said Philip Shaw, chief economist at Investec. 'A rate increase is likely to be avoided, but cuts are likely to have to wait until next year.'

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