MPC Decision Sept 2008
Transcript
Clare Francis: Despite worsening economic conditions the Bank of England's Monetary Policy Committee has voted to keep interest rates on hold at 5%.
Bank rate has now remained unchanged since April and many consumers and business leaders will be disappointed that the MPC didn't take the opportunity to cut rates by a quarter point. However the spectre of inflation hitting 5% is likely to have been the main reason why rates have been left unchanged again. Certainly as far as economic data is concerned, the arguments for interest rate reductions seem to be growing by the day.
Since the MPC met last month official data has revealed that the economy didn't grow at all in the three months to June, and the Organisation for Economic Cooperation and Development has warned that the UK economy could be in recession by the end of the year.
This warning came just days after the Chancellor, Alistair Darling, said that we are facing the worst economic downturn for nearly 60 years.
House prices have fallen 10.5% over the past 12 months according to Nationwide building society - the sharpest drop since 1990 - and Bank of England figures revealed mortgage approvals fell again in July.
The Government is clearly worried about the extent of the slowdown in the housing market. Its announcement that it will suspend stamp duty for a year on properties costing less than £175,000, as well as implement measures aimed at designing to helping those who are trying to get on to the ladder, as well as those struggling to meet their mortgage payments, indicates just how desperate it is to avoid a full-scale housing market collapse.
However, rising inflation remains a problem and this is why interest rates will have been left unchanged this month. We've now seen all six major energy providers increase their standard tariffs - gas prices have risen by an average of 34%, while electricity bills have gone up by an average of 22%. Consequently, inflation looks set to rise further before it starts to fall back.
That said, once it has peaked, many analysts expect that it will fall back quite quickly and an increasing number of economists are forecasting interest rate cuts before the end of the year.
