Articles > December Interest Rates

The Bank of England and its decision makers, the Monetary Policy Committee, decided to keep the interest rates unchanged for the forth month running in order to prevent inflation from rising, regardless of the fact that the economy seems to be slowing. The Monetary Policy Committee kept the rate at 4.5% in line with predictions from the nations economists.

The MPC are concerned that the 37 percent increase in oil prices this year could cause a wage-price slump. Since the quarter percent drop in the interest rate back in August due to the slowest growth in the economy for over 12 years, the Bank of England expects growth to increase in the new year due to increase consumer spending over the holiday period and stronger exports and business investment.

Everybody would expect the Bank of England to cut interest rates to boost the economy, but this isn’t necessarily the case. The bank needs a lot of data such as retail figures and wage agreements, before it decides to make a decision on interest rates.

The Bank of England has stated that they do not want inflation to have too much influence over wages and consumer prices. A 2 percent pay increase can be expected for state workers from next years wage round.

The British Retail Consortium would welcome a cut in interest rates as sales have increased for the first time in eight months. A cut in rates would help keep the momentum going. 40 percent of retailers annual income is made from sales in the month of December, due to the Christmas shoppers spending around £10 billion more than any other month.

Consumer spending which accounts for two-thirds of the economy has slowed with little sign of improvement over the last few months. Many of the country’s biggest companies are predicting a daunting Christmas season as the economy is providing little evidence of improvement in the consumer climate.

Will the Bank of England finally decide to cut interest rates to not only boost economic growth but confidence within the consumer market as well? We are all going to have to wait and see if the new year will bring change to the current economic situation.