No change in bank interest rates |
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Published
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Fri, 07 Oct 2005 06:05
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LONDON: The monetary policy committee of the Bank of England decided to retain the interest rate at 4.5 per cent for the second consecutive month. The decision, analysts felt, is in line with expectations that the bank does not want to intervene at this point of time. They feel the MPC members want to wait longer so that a sustained upturn in consumer spending growth happens.
The rates were revised last in August.
The MPC's contention is corroborated by the modest recovery in consumer spending as reported by the Office for National Statistics, which doubled its estimate of household consumption to 0.4 per cent in the second quarter. Household borrowing and mortgage equity withdrawal too have picked up, while mortgage approvals have risen to their highest in a year.
However, some economists feel that an interest rate cut is due, but when is the question. It could be as early as next month, or even early next year.
Worries about rising inflationary pressures could have acted as a deterrent against the interest rate cut, some of the analysts feel. In August, the cost price index measure of inflation had risen to an annual rate of 2.4 per cent, above the targeted 2 per cent.
Economists do not expect any stronger third quarter growth. Official data indicated that manufacturing output in August had come down 0.2 per cent from July and down 0.1 per cent from a year earlier. Industrial output in the month had slumped by 0.9 per cent from July for a 1.9 per cent year-on-year fall. Even retail sales had shown frustrating results July, August and September and consumer confidence levels are waning.
These are all lead to the conclusion that a quarter-point interest rate cut to 4.25 per cent is justified.
Manufacturers organisation, the EEF, complimented the bank for the right decision. It felt there will now be time to assess whether the current soft patch proves temporary or not.
The British Chambers of Commerce said the Bank had to maintain a "flexible approach" to counter any sharp slowdown in the pace of economic activity.
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