Bank keeps interest rate unchanged, anxious about inflation |
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Published
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Tue, 10 May 2005 16:15
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In a much anticipated meeting held on Monday, the Bank of England’s Monetary Policy Committee (MPC) announced the interest rate of 4.75% will remain unchanged for the ninth consecutive month to the relief of homeowners with mortgages across the UK and the retail industry.
It appears that the MPC gave in to pressures from various quarters. Borrowings had dropped. Consumer spending had slowed down. Mortgages had peaked at £47 billion forcing people to tighten their belts. According to statistics from the Office for National Statistics, manufacturing output had dropped by 1.6% during March. This drop was the fastest rate in almost three years. Industrial production had also dropped unexpectedly by 1.2%.
| One of the jobs Labour now has to do is to reverse some of the damaging effects of their earlier policies. Currently about a million households are remortgaging; for the average family this means an additional outlay of £100 a month. The current mindset which encourages borrowing is also not helping. Everywhere you look you will find hoardings screaming offers from lenders. You switch on the TV you find commercials from banks and other financial service providers exhorting you to borrow from them. Then there are some which completely overlook the irony in their message: they ask you to lighten your burden of debt by “taking another loan”, this time from them!
A leading investment bank conducted a survey and reported a not-so-happy picture of our economy. The report said that consumers’ spending had reduced due to higher interest. Its domino effect was seen on reduced employment rate: as consumers spent less manufacturers’ output had to slow down leading to a drop in their hiring rate. Unemployment has been up and rising non-stop for three months.
According to the report, in many cases these job losses are self-fuelling, i.e. for every 100 jobs lost, there will be a corresponding drop in spending (as workers cut their spending) which will hit manufacturing, and so on.
During Saturday’s meeting the MPC had also considered the need to keep inflation in check by increasing the interest rate; but all other factors outweighed this need. In addition, consumer spending was observed to have weakened dramatically spurring the need to keep interest unchanged.
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