Bank keeps rates on hold

The Bank of England has decided against another interest rate cut, voting to hold the rate at 5.5%.

Last Updated: 31 Aug 2010

It was probably a close call for the Bank’s Monetary Policy Committee. At the start of the week there was growing pressure on them to cut rates by another quarter point, as they did in December, following a string of disappointing Christmas trading results. In fact the cheerful chaps at the British Retail Consortium were even advocating a half point cut.

But news that some retailers – notably John Lewis, Selfridges and Sainsbury’s today – have actually done rather well during the festive period has calmed the high street’s nerves a little. And the Bank is still worried about inflation. Oil is hovering around $100 a barrel, and suppliers like Npower are starting to pass this on to the customer via price hikes. Commodity costs have also escalated, leading to rising food bills.

So the MPC clearly concluded that the safest option was to hold for another month and see what happens. What’s more, they haven’t cut rates twice in a row since the period after 9/11, so they were probably wary of the precedent.

However, the overall economic outlook shows little sign of improving, so we’re likely to see a quarter-point cut at some point – probably as early as next month. In fact, some analysts are even suggesting that rates could fall to 4.5% by the end of 2008.

The situation could look quite different in four weeks’ time, of course. But for the time being, we’re afraid your mortgage won’t be getting any cheaper (not that the banks would have passed the saving on anyway, probably). On the other hand, it's probably a good time to buy your holiday euros - once the rate starts falling, the pound will start sliding...

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