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July 4, 2007

Higher Interest Rate Forecasts Remain Solid

by Gill Montia

Story link: Higher Interest Rate Forecasts Remain Solid

There has been no change in the recent predictions that the Bank of England will raise its base rate to 5.75% on Thursday 5th July, when the Monetary Policy Committee (MPC) next meets.

Whilst the rate remained at 5.5% following the meeting of the MPC in June, four of the nine members of the Committee were in favour of an increase at that time.

Despite a fall in inflation during May, to 2.5%, the Bank is still under pressure to meet the Government’s target of a 2% inflation rate.

Mervyn King, Governor of the Bank of England, continues to express concerns about the level of not only consumer but also company spending in the UK; he fears that both are rising ahead of the economy’s ability to provide for higher demand.

Business leaders are urging the Bank not to increase interest rates in July, pointing out that while inflation remains above the Government’s target, it is now falling in response to the four increases in interest rates since August 2006.

Some analysts believe that the action taken so far is beginning to slow down the economy and that not sufficient time has elapsed to assess its full effect.

 

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