Market turbulence may delay base rate rise

by Gill Montia

Story link: Market turbulence may delay base rate rise

Leading economists are of the opinion that the current turbulence in the financial markets is likely to delay the much expected autumn rise in the base rate, from its current level of 5.75%, to 6%.

The international financial markets have been destablised because of events in the US sub-prime mortgage market, where thousands of people with poor credit histories have defaulted on their mortgage payments.

As a result, the debt markets are short of cash and overall, City analysts are taking the view that a September interest rate rise could seriously damage the UK economy.

Any such rise now looks unlikely before November of this year, which would give time for the global credit and financial markets to become more settled.

In addition, The Office for National Statistics has recorded a decrease of 0.5% in July manufacturing costs, largely as a result of a fall in metal and food prices.

This, together with a 0.2% July rise in manufacturers’ prices could indicate that the Bank is on track to get inflation back to its 2% target.

This week will see the publication of the latest inflation figures and the minutes from the August meeting of the Monetary Policy Committee.

The minutes are likely to give further clues as to the likelihood and timing of further base rate rises.