The Financial Blog

The Monetary Policy Committee today voted to keep the Bank Rate on hold at 5.0 per cent.  I’ve collated all the latest comments from industry experts below;

Comment from Barry Naisbitt, Abbey Chief Economist on base rate decision;

“The Bank of England held rates at 5 per cent today. Market commentators had expected no change this month after the almost unanimous decision to hold rates last month and the warnings about higher inflation in the months to come. The Monetary Policy Committee (MPC) has clearly signaled its concern that higher inflation may feed through into elevated inflation expectations. Consumer price inflation rose from 2.5 per cent to 3 per cent in April. With increasing signs of slowing output growth, the majority of MPC members must have judged that the most recent evidence of slowing economic activity needed to be balanced against both their expectation that activity would slow and that inflation indicators are high and expected to rise further.

“The MPC Minutes, which are published later this month, should give some more information on how the MPC members judged the risks in what is a highly uncertain economic situation. If the slowing in economic activity is viewed as supporting lower inflation in the medium term, a further rate cut could still be on the cards later this year, although much will depend on how inflation develops in the coming months.”

Commenting on today’s MPC interest rate decision, Henk Potts, Equity Strategist at Barclays Stockbrokers said:

“The MPC finds itself in the middle of a difficult balancing act, involving rising inflation on one side and slowing economic growth on the other.

“There is no doubt that UK economic growth is moderating - the credit crunch has reduced the availability of credit, the housing market is slowing down and the high street is showing signs of softening. Real incomes are also being squeezed by high inflation, which has the potential to further reduce household demand. Meanwhile, inflation is way above target and set to go even higher in the coming months.

“However, as you look into 2009, slowing economic growth should reduce capacity pressures and thus inflation, and therefore there is still the possibility the MPC could cut interest rates later on in the year.”

It was no surprise that the MPC decided to hold rates at 5% today according to the Council of Mortgage Lenders. CML director general, Michael Coogan commented:

“We expected the MPC to hold rates today as it wrestles to control rising inflation in a weaker economic outlook.

“But clearly there are still affordability pressures on borrowers and a widespread funding shortage for lenders. We hope that as the effects of the Bank of England’s liquidity scheme feed through the financial system there will be some benefits for mortgage lenders, and in turn borrowers, later in the year.”

Trevor Williams, chief economist, Lloyds TSB Corporate Markets said:

“The Bank of England’s decision to hold rates this month was widely expected, given the need to deal with the problem of rising inflation. Of course, the credit crisis is still a clear and present danger to economic growth, which suggests that rates should be cut, but inflation is now causing real concern, both in the UK and around the world.

“The worry is that worsening inflation figures in the months ahead could push inflation expectations up even further, making a rise in actual inflation a self fulfilling prophecy. Cutting base rates in this environment is not a realistic option. So the MPC was right not to move.”

This entry was posted on Thursday, June 5th, 2008 at 2:22 pm and is filed under Banking. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.