UK interest rates stay at 5.25 percent

| March 8, 2007

UK interest rates stay at 5.25 percent

The Bank of England’s Monetary Policy Committee decided Thursday to leave the interest rate at its current level of 5.25 percent for at least another month. Most analysts expected the decision, as a Reuters poll showed only 9 out of 64 surveyed thought that the rate would go up this month. However, many analysts believe that the Bank will raise rates again in April or, if not then, in May.

The MPC had a number of issues to look at in making their decision. Inflation is currently at 2.7 percent in the UK, well above the government target of 2 percent. Despite recent rate hikes, retail sales remain strong according to the British Retail Consortium. Manufacturing is stronger than expected, as new figures from the Chartered Institute of Purchasing Managers show. The housing market has remained fairly robust, despite rate hikes and warnings that house prices are beginning to be out of reach of some potential buyers.

On the other hand, growth in the service sector was slower than had been expected according to the most recent survey by CIPS. The MPC had to try to figure out exactly how much spare capacity there is in the UK economy and how fast it can grow without sending inflation higher. When the minutes of Thursday’s meeting are released in two weeks, the public will be able to see exactly what went into the MPC’s deliberation over these issues.

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