Bank Decides on Rate Hold

The Bank of England decided today to hold interest rates at five per cent for the fourth month in a row.

Contradictory economic pressures are thought to have led to the Bank's nine-member Monetary Policy Committee (MPC) to make the decision. While the economic slowdown continues - a situation which would usually lead to a cut in the base rate - inflation is also on the rise. These conflicting trends, which rarely occur simultaneously, have left the Bank with a dilemma over what to do.

A mark of the Bank's uncertainty over the issue is the three-way split seen in the MPC's rate-setting vote last month. While seven members voted for the rate to remain where it was, one member each voted to raise or lower it by 0.25 percent.

Following the announcement of this month's decision, director general of the Council of Mortgage Lenders Michael Coogan commented: "The MPC faced a difficult decision today in the face of rising inflationary pressures and a slowing economic outlook.

"Holding the Bank rate is better than raising rates, as one MPC member suggested last month, but a reduction would have been a welcome recognition of the current financial strains on households already struggling with hikes in other living costs."

Also responding to the Bank's decision, Barry Naisbitt, chief economist at Britain's largest mortgage lender Abbey, said: "The MPC has clearly signalled its concern that higher inflation may feed through into elevated inflation expectations and so into continued high inflation.

"The majority of MPC members must have judged that the most recent evidence of slowing economic activity provided a balance against the inflation indicators that are high and expected to rise further."