BoE committee leaves interest rate unchanged - Emirates24|7

BoE committee leaves interest rate unchanged

Monetary Policy Committee has left the door open for a rate cut pending more data on the economy. (AP)

Some Bank of England policymakers considered raising interest rates this month before deciding to join the eight to one decision to keep borrowing costs pegged at five per cent.

Minutes of the Monetary Policy Committee's June 4 to 5 meeting showed arch-dove David Blanchflower maintained his call for a quarter-point interest rate cut but the rest thought there was no case for that given the worsening inflation outlook.

Policymakers, however, left the door open for a cut once they got more information on the economy. Some MPC members thought there was a case for an immediate rate hike but decided against it because of signs the credit crunch is now hitting the wider economy.

"While a rate hike in the coming months is possible we continue to see the majority of the MPC favouring rates on hold," said Michael Hume, economist at Lehman Brothers. "We still expect growth concerns to gradually dominate the MPC's thinking and so still expect a rate cut later this year, most likely in November."

Figures out on Tuesday showed inflation hit 3.3 per cent in May, the highest since the Labour government came to power in 1997, forcing Governor Mervyn King to write to the government explaining why.

In his letter King calmed market nerves over imminent rate hikes, saying policymakers had to balance short-term price pressures against the risk of a sharply slowing economy pulling inflation below the two per cent target in two years.

Blanchflower, the lone voice in favour of a rate cut, said there was a growing risk of the British economy turning down very sharply, though recession was not his central forecast.

News on the British economy has been bleak in recent weeks and Bank of England policymakers noted that housing market conditions had "deteriorated sharply" and the effects of the global credit crunch were still working their way through the economy.

Finance Minister Alistair Darling was to tell the annual Mansion House dinner of City of London financiers yesterday that the country's economic policy framework was facing its biggest test in years, said Treasury officials.

The Confederation of British Industry's monthly survey of industrial trends out yesterday, however, showed factory order books improving. Price pressures were also rife, though.

"Manufacturing demand is holding up reasonably well," said Ian McCafferty, the lobby group's chief economic adviser. "Manufacturers, especially those exposed to the global economy, have been less affected by the slowdown in domestic spending than others."

Most of the retailers are certainly complaining.

Woolworths Group Plc, which has more than 800 stores up and down the country selling everything from confectionery to cameras, reported falling sales yesterday and said it was "cautious about the consumer economy".

Supermarket chain J Sainsbury's results also disappointed yesterday with its shares falling as much as three per cent.

"Sainsbury's update showed how competitive the environment is out there, with consumers having less money in their pockets due to higher mortgage payments, higher taxes and higher prices at the pump," said Barclays strategist Henk Potts.

 

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