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Monday 01st of December 2008
August 7, 2008

Interest rates on hold at 5%


by Kay Murchie
”Interest

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 slowing economy and runaway inflation. Recent reports have suggested that the economy could be heading for a recession.

According to Hetal Mehta, senior economic advisor to the Ernst & Young Item Club, rates remain unchanged due to fears of driving the economy into recession. The Bank feels it could nothing other than to sit tight, said Mr Mehta.

A minority of analysts had forecasted a rate rise in a bid to tackle inflation, which is currently at a decade-high of 3.8% - almost double the 2% target.

Some economists believe inflation could hit the 5% mark before the end of the year, as energy firms increase their prices.

In the second quarter of the year, the economy grew just 0.2% and yesterday, the International Monetary Fund (IMF) revised its prediction for UK economic growth this year and next.

The IMF said UK growth will be just 1.4% in 2008 and 1.1% in 2009, the figures are in stark contrast to that of the Chancellor, Alistair Darling, who predicted growth of between 2.25% and 2.75% for next year.

If the predictions from the IMF are accurate, it would leave Britain with its worst performance since the end of the last recession in the early 1990s.

Since December, the Bank of England have cut interest rates 3 times.

The Halifax has announced today that house prices in the UK fell by 1.7% last month, which is in line with rival Nationwide, who last week also said prices were 1.7% lower in July.

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