Interest rates on hold at 5%

The Bank of England’s Monetary Policy Committee (MPC) has decided to keep UK interest rates on hold at 5%.

The move was widely expected by analysts as the Bank battles with a possible recession and runaway inflation. This is the fifth month that interest rates have remained the same.

David Blanchflower, a member of the MPC, recently hinted that he would vote for aggressive cuts this month in a bid to boost the economy. However, analysts have said that other committee members would rather wait until there is proof of inflation lowering before opting for a reduction.

Official figures last month revealed that the UK’s annual rate of inflation surged to a record high of 4.4% in July. Inflation is now at its highest level since current records began in 1997 and double the Bank’s target of 2%.

According to Ian McCafferty, CBI chief economic adviser, the MPC remain concerned about inflation and it is likely inflation could rise to around 5% over the next few months.

A report earlier this week from the Organisation for Economic Cooperation and Development (OECD) said it is likely that the British economy will fall into recession during the second half of this year.

It is expected that Britain will be the worst performer out of the world’s wealthiest nations with the economy expected to shrink by 0.3% in the third quarter and 0.4% in the fourth quarter, said the OECD.

The forecast from the OECD is the gravest yet and said the definition of a recession is two consecutive quarters of negative growth.

Meanwhile, Chancellor Alistair Darling said the UK is facing the worst economic downturn in 60 years and it will be ‘profound and long lasting’.

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