Bank of England holds interest rates steady at 5% - Emirates24|7

Bank of England holds interest rates steady at 5%

The Bank of England kept official interest rates unchanged at five per cent on Thursday, shying away from back-to-back trims despite slowing economic growth.

The decision to keep rates on hold was anticipated by most analysts after the bank’s monetary policy committee made a quarter of a percentage point cut last month. The bank had to balance its decision with concern about inflation that remains above target levels.

“Current elevated inflation levels and risks deterred the MPC from cutting interest rates for a second successive month in May despite mounting signs that the UK economic downturn is deepening and widening amid ongoing tight credit conditions,” said Global Insight economist Howard Archer.

However, a majority of economists expect the bank to be forced into another cut next month to take rates to 4.75 per cent amid falling house prices and weakening consumer confidence.

One monetary policy committee member, David Blanchflower, warned last month that the economy faces a possible recession if the central bank did not take swift action.

“Most MPC members probably currently favor maintaining a policy of gradually but steadily trimming of interest rates,” said Archer. “The MPC is particularly worried that current elevated inflation levels and likely further rises over the next few months, primarily resulting from higher utility and food prices, as well as the weaker pound, could lift inflation expectations markedly for an extended period.”

Economists expect the bank’s quarterly inflation report due next week to provide a clearer picture on future interest rate policy.

Manufacturing organization EEF said mounting threats to business and consumer confidence meant a cut in June was necessary.

“The economy has been through a series of shocks since the credit crisis hit last summer and the bank has been right so far in responding with a measured approach on rates,” said EEF chief economist Steve Radley. “However, despite concerns on inflation, further cuts to interest rates are needed to prevent the economy from drifting towards recession.”

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