The Bank of England (BoE) has once again voted to hold its base interest rate at 0.5 per cent today,
despite continued inflationary pressures. However the Bank’s position may contrast with that of the
European Central Bank (ECB) which is expected to increase its own borrowing rates this afternoon.
The BoE’s Monetary Policy Committee (MPC) feel that helping the nation towards sustained
economic growth is more important than immediately tackling inflation – despite UK consumer
inflation surging to more than double the Bank’s 2 per cent target. Previous statements issued by
the Bank of England show there is still a strong feeling that many of the country’s core inflationary
pressures are temporary and that it can be brought within target within the next one to two years.
Meanwhile, most analysts expect the ECB today to raise its main refinancing interest rate from 1.0
per cent for the first time in almost three years – as a direct response to a surge in inflation across
the European economic area.
Howard Archer, economist with Global Insight, said of the BoE’s decision to maintain rates: “Serious
concerns and uncertainties over the growth outlook deterred the MPC from acting despite the
pressure for higher interest rates coming from elevated and still rising consumer price inflation.
“The majority of MPC members likely decided that caution on interest rates is warranted for now at
least, given mounting evidence that consumers are reining in their spending, the fact that substantial
fiscal tightening kicked in from early-April and the threat to growth currently coming from high oil
prices.”
He added: “Importantly, earnings growth currently remains muted which indicates that high
unemployment is so far preventing higher inflation and increased inflation expectations feeding
through to push up pay.”
