Base rate held at 5%

by Gill Montia

Story link: Base rate held at 5%

The Bank of England’s Monetary Policy Committee has voted in favour of keeping the base rate at 5% in July.

The decision came as no surprise to economists, most of whom have been expecting the status quo to be maintained.

Inflation rose to 3.3% in June, well above the Government’s 2% target, and the Committee has the difficult job of balancing evidence of an economic slowdown against the inflationary pressures of rising fuel and food prices.

A serious economic slowdown could force the Bank of England to lower rates and recent reports on the UK economy have led to a shift in the expectation among City analysts that interest rates would increase over the next two years.

June’s rise in inflation, combined with strong retail sales figures had led some analysts to forecast up to two quarter point increases in the base rate before the end of the year.

However, evidence that the economy is weakening continues to grow; this week has seen Britain’s leading housebuilders, including Persimmon and Bovis Homes, announce major job cuts as sales of new homes plummet.