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B of E holds interest rates steady


by Elaine Frei
May 4, 2006

The Monetary Policy Committee of the Bank of England decided on Thursday to leave interest rates at 4.5 percent. The decision was expected by most analysts, but the majority now believes that there may be a rate increase by the end of the year. This is a change of position based on recent economic data; earlier, most analysts believed that the next interest rate move would be in a downward direction.

After the release of data on Tuesday that showed the manufacturing sector in the UK expanding, Thursday brought new numbers from the services sector is also growing. The CIPS/RBS business activity index was at 59.7 in April, up from 57.4 in March, the most rapid growth pace in two years. Employment in the sector was up, and so were consumer prices as businesses found ways to pass on their increased costs on to their customers.

Among other new data, house prices were up by 2 percent in April from March prices and they increased by 8 percent over April of last year. This was the biggest increase in over a year. In addition, loan approvals for home purchases were at 116,000 in March, up from 114,000 in February, with net lending at £9.3 billion in March. That total was much higher than the £7.9 billion net lending in February. The house price data is from Halifax, while mortgage number come from the Bank of England.



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