Articles > October Rates Held

The Bank of England’s Monetary Policy Committee (MPC) decided to keep interest rates unchanged for the second month in a row after the quarter percent cut seen in August. The rate currently stands at 4.5%.

The announcement was highly anticipated from retailers, manufacturers and property developers. Although it was predicted that the rates would remain stationary, many believed it was not the right decision. A number of firms are calling for another cut in the rates as soon as possible, due to pressures they are facing from suppressed sales figures.

The Bank of England lowers and raises the base interest rate in order to keep the economy in stable growth, with an aim of maintaining inflation at as close to its target of two percent. The MPC believes that increasing fuel prices has been the sole reason for the recent rises in inflation that have pushed it beyond this target. However they also believe that the interest rates will fall of their own accord.

The MPC have made it very clear that there is no rush to cut interest rates further, despite the international effects of the current global oil crisis. The housing market is said to be on the brink of collapse should it not see another cut in interest rates, although this is a pessimistic view and recent figures actually show signs of a recovery.

Currently consumer spending is on the downturn and is worrying economists more than inflation, prompting rumours of further interest rate cuts. The Bank of England forecast is said to be too optimistic over its predictions of future growth. MPC members have noted that there are severe risks to the banks forecast, which comes from the current decline in consumer spending.

November is predicted for the month of another cut in the interest rates, but could be delayed until the first few months of next year. Consumer spending has a tendency to increase over Christmas time. The Bank is probably waiting a few more months simply due to uncertainty of energy costs and consumer spending and how these factors effect economy wide inflation.

Mortgage lenders believe that the rates will remain still unless strong evidence is provided that the economy is weakening. Overall the financial markets should not be surprised by the banks decision to stall any movement of the interest rates, and we should not expect rates to move until early next year.