BOE leave interest rates unchanged at 5.00%
05 June 2007
As expected, the Bank of England voted to keep interest rates on hold at 5.0%, amid growing concerns over the pace of UK inflation. Since the May interest rate announcement, price pressures have gained further momentum alongside mounting evidence of an imminent economic slowdown. However, in their quarterly inflation report the MPC placed greater weight on recent inflation developments, signalling the Bank’s concern to maintain the credibility of its inflation target.
April CPI spiked higher to 3.0%, suggesting the Government will have to write an open letter to the Chancellor this month when May CPI is revealed. Oil prices surged above $135 per barrel last month while both factory gate and producer costs rose at a record pace in April and show few signs of abating. However, the MPC will be increasingly mindful of recent signs that the UK economy is hurtling towards stagnating activity, with the housing market and consumer confidence continuing to deteriorate.
As always, the market will look towards the release the minutes from today’s meeting in two weeks time to gauge how serious policymakers regard recent inflationary pressures and whether or not there is scope for further monetary easing in the coming months.